What Effect Will the Fed's Interest Rate Increase Have on Crypto Assets?
The US dollar has gained strength versus all other currencies following Fed Chair Jerome Powell's hawkish speech, which again hiked the benchmark interest rate by 75 basis points.
According to the Fed's announcement, the move to raise the benchmark interest rate was made in an effort to curb inflation. It was hoped that by doing so, the money supply would be reduced and commodity prices would be restrained from rising sharply.
The Fed's benchmark interest rate range, which is 3.75 to 4 percent, could raise lending rates, according to Indonesian banking professionals. He claimed that the reduction in investors was a result of the higher interest rates.
Investment value typically declines as economic growth slows. On the other hand, high bank interest rates can encourage people to deposit their money, which is what has been happening lately.
The US dollar surged against all other currencies as a result of the US central bank's aggressiveness in raising the benchmark interest rate, which caused market participants or investors to seek safe havens.
The US dollar is now gaining, which causes the currencies of practically all major nations as well as the majority of emerging market nations (developing countries), including cryptocurrency markets, to decline.
Cryptocurrency assets were originally regarded as profitable investments, just like gold, despite not being governed by a single entity. Sadly, the cryptocurrency market is currently declining, as evidenced by the decline in market capitalization.
This occurred because investors started to avoid riskier assets, such as investments in crypto assets, when the Fed hiked its benchmark interest rate once more.
The central bank has impetus as a result of the crypto market's decline to reiterate the risk of cryptocurrency price swings. The central bank also creates its own virtual money to show that it is keeping up with the times and technological advancements.
As you may be aware, a number of central banks, including the Federal Reserve, Bank of England, and European Central Bank, are researching the potential of a digital version of their currency, known as the Central Bank Digital Currency (CBDC). Similar plans exist for Bank Indonesia (BI), which will also introduce its digital rupiah, or CBDC.
The concept of Digital Rupiah differs from that of electronic money, which is now widely used by the general public.Although the terms of the currency value still adhere to the standard Rupiah value, this form of money is closer to the idea of crypto currency.
As a result, it is anticipated that this digital currency would have far greater value stability than other digital currencies like Bitcoin and other cryptocurrencies. It is anticipated that 20% of the market's currency will be issued in the form of digital rupiahs. The ratio is chosen to avoid widening the distribution of funds. The likelihood of inflation can be reduced in this way. At the end of 2022, BI will reportedly publish a manual or white paper for the issuance of this digital Rupiah.
He thinks that this plan will probably take a long time. This is due to the fact that CBDCs must have access to and government adoption of the blockchain technology that powers cryptocurrency. However, more research is still needed before it can be put into practice, including boosting people's digital literacy. This strategy at least addresses the public's fears about technology.
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