07 Feb 2022
Did falling interest rates fuel the bitcoin boom?During the past five years, the bitcoin price has been inversely correlated with future interest rates expectations. How did the latest years’ falling interest rate environment affect bitcoin?
Source: Tradingview, Coinbase
During most of bitcoin’s life, interest rates have been falling, pushing capital into riskier and more “experimental” assets.Since 2017, bitcoin’s correlation with the US 2-year treasury yield has been -0.57, meaning that when expectations for future interest rates decrease, the bitcoin price has tended to increase – and opposite.As we have repeatedly mentioned, bitcoin is currently behaving like a risk asset, being increasingly susceptible to macro fears.Bitcoin has not always been as inversely correlated with future interest rate expectations. In 2017 the US 2-year Treasury yield increased from 1% to 2%, but the bitcoin price climbed from $900 to almost $20,000.After sitting just above 0% since the covid outbreak, interest rates started climbing last Autumn and are now almost at pre-covid levels. Many investors fear that bitcoin will fare poorly in a higher interest rate environment, which clearly has affected the bitcoin price lately.Nonetheless, bitcoin has previously done well in certain periods of rising interest rates. Therefore, fears of higher interest rates extinguishing the bitcoin boom may be overly exaggerated.