Wednesday, 21 November 2018

What will happen to Bitcoin if FED starts raising rates

- Robert Leshner explains the correlation between cryptocurrency and FED's policy
- Stablecoins are going to gain popularity.
The Federal Reserve decision to raise rates may hit the deflationary cryptocurrencies such as Bitcoin, Robert Leshner believes. An economist by training, he focuses on predicting the Fed's interest rates decisions and points out, that digital assets have existed only in low-interest rate environment.

As the Fed starts tightening its policy, cryptocurrencies may be vulnerable as no one really knows how they will behave in a new monetary environment.


“We’ve always known crypto in an environment of essentially zero or low-interest rates. And that’s an environment of easy and loose money where capital has been prolific and looking for returns wherever it was found,” he says


Leshner explains that unlike fiat currencies, digital tokens like Bitcoin, Ethereum and others bring no interest. Basically, no one will pay you for holding those assets.


. “We’re finally starting to enter an environment of rising interest rates which crypto has never seen before and it’s going to be potentially challenging to the price of a lot of crypto assets just like it will be for a lot of assets in general, including equities,” Leshner adds.


With that in mind, Leshner believes that stable coins have a great potential No wonder that lots of companies, including such big names as Winklevoss brothers’ Gemini and Coinbase rush to get involved in a stablecoins business.


Leshner says that stablecoins are easy to launch, and they allow the issuers to get a free loan from users that buy them at zero interest. The expert predicts that soon we will have about 50 stablecoins backed by different fiat currencies.


While Fed may ban all those digital versions of US Dollar, this is not going to happen any time soon, which will lead to a whole new market of crypto companies offering digitalized versions of fiat currencies.


“The advantage of tokenization is it brings transparency and programmability to currency,” he said. “When dollars are open to blockchain there’s so much more innovation that can occur. ”

source: fxstreet.com
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