Will higher interest rates take a bite out of the Bitcoin price in 2022?

With central banks the world over forecast to raise interest rates, how will crypto prices hold up?

| More on:
a mysterious person wearing a black hoodie points a finger to a vast illuminated graph tracking bitcoin value with bitcoin symbols floating above the chart.

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Key points

  • Bitcoin price could be impacted short-term from rising interest rates 
  • Altcoins likely to take more of a hit in a high-rate environment 
  • Geopolitical tensions are weighing on most tokens 

The Bitcoin (CRYPTO: BTC) price is down 2.7% over the past 24 hours, currently trading for US$40,810 (AU$56,915).

That leaves Bitcoin up 7.3% since this time last week and down 14.4% year-to-date.

Ethereum (CRYPTO: ETH), the world's number 2 crypto by market cap, is losing ground today too. The Ethereum price is down 3.1% to US$2,838. Ethereum is still up 12.5% over 7 days, while the price is down 24.6% since 1 January.

The Bitcoin price and that of most major cryptos (outside the stablecoins) have followed a similar trajectory to risk-assets like ASX tech shares, this year.

And with the spectre of multiple interest rate rises now looming over the coming year, the S&P/ASX All Technology Index (ASX: XTX) has lost 17.9% year-to-date.

Which brings us back to…

Will inflation take a bite out of the Bitcoin price in 2022?

It's not inflation, so much, that might throw up headwinds for any potential gains in the Bitcoin price in 2022. But rather the higher interest rates on the cards to keep inflation in check.

Addressing the difficult macro conditions facing crypto investors, Marcus Sotirou, analyst at digital asset broker GlobalBlock, said (quoted by Bloomberg), "Bitcoin is consolidating under $41,000 as the percentage of long-term holders in the market continues to increase. But for 2022, I can't expect an aggressive uptick in prices, because of the macro conditions."

Wilfred Daye, head of Securitize Capital, added, "For Bitcoin to breakout, a tech rally and macro risk-on sentiment are the key ingredients."

Asked about the impact of higher rates on the Bitcoin price and other cryptos, Josh Gilbert, crypto analyst at multi-asset investment platform eToro told The Motley Fool:

While rate hikes generally equate to a lower investor appetite for higher risk assets like crypto, it's unlikely to change the long-term picture for the asset.  It's expected that we will continue to see a period of consolidation with crypto, as long as geopolitical tensions ensue. In the situation that they do ease, a crypto relief rally is anticipated to occur.

Gilbert noted that the Ethereum and Bitcoin price are likely to perform better under an environment of increasing interest rates than some of the lesser-known altcoins.

Altcoins will be more susceptible to investors rotating out of crypto, as they tend to carry more risk than the larger capped crypto assets such as Bitcoin and Ethereum. This is because larger capped crypto assets are more established and their use cases to the everyday investor are much clearer as shown by their rise in recent months.

The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns and has recommended Bitcoin and Ethereum. The Motley Fool Australia owns and has recommended Bitcoin and Ethereum. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

More on Cryptocurrencies

Bitcoin ETF digital illustration.
ETFs

Why is the BetaShares Crypto Innovators ETF (CRYP) surging on Thursday?

Some massive Bitcoin news is lifting this ETF today.

Read more »

A woman holds a bitcoin token in her hand as she smiles at the camera in the background.
Cryptocurrencies

Bitcoin ETF approved. When is it coming to Australia?

Crypto bulls will be celebrating this milestone moment.

Read more »

person dancing in bitcoin spectacles wearing a gold outfit with hands up.
Cryptocurrencies

Bitcoin price rockets to 21-month highs. Here's why

The Bitcoin price is now up more than 174% in 12 months.

Read more »

BTC spelt out on wooden blocks with a red sign going down.
Cryptocurrencies

Bitcoin price sinks from 21-month high as ETF rumours swirl

What's going on with this cryptocurrency this week?

Read more »

person dancing in bitcoin spectacles wearing a gold outfit with hands up.
Cryptocurrencies

Up 145% in a year, the Bitcoin price just smashed through 18-month highs!

After a horror year in 2022, the Bitcoin price has come roaring back in 2023.

Read more »

Two investors look at a graphic showing a bitcoin in the centre
Cryptocurrencies

Why did the Bitcoin price just hit a 17-month high?

The long-standing cryptocurrency is finding its feet to reclaim a price not seen since May 2022.

Read more »

ETF written in gold with dollar signs on coin.
ETFs

This ASX ETF is up 21% in April so far

How on earth has this ETF smashed the market by a factor of 10?

Read more »

Two investors look at a graphic showing a bitcoin in the centre
Cryptocurrencies

Bitcoin price rockets 28% in a week amid 'perfect use case'

It’s not just the Bitcoin price that’s shooting the lights out this past week. Ethereum is also up 12% since…

Read more »