How Do Interest Rates Affect Cryptocurrency Investments?  

How Do Interest Rates Affect Cryptocurrency Investments?

Cryptocurrency is a relatively new, exciting investment opportunity. In recent years, the value of cryptocurrency has grown significantly. Cryptocurrency is a virtual or digital token that uses cryptography to control the creation of units and secure their transactions. Cryptocurrencies can be used to purchase a wide range of goods and services.

Cryptocurrency is — currently — decentralized, meaning it is not subject to the control of financial institutions or the government. If you are looking for an investment free from centralized systems, you may want to invest in cryptocurrency. Cryptocurrency can also be very profitable, traded at any time and used to diversify your portfolio. To invest in cryptocurrency, you may want to open a self-directed IRA.

How Do Interest Rates Affect Cryptocurrency?

An interest rate is the amount a lender charges borrowers for a loan. Interest rates affect consumers, businesses and economies. Interest rates can affect crypto, which can be a major concern for investors in the present economy. Currently, interest rates are on the rise as the Federal Reserve attempts to get inflation under control. 

How Low Interest Rates Affect Cryptocurrency

Low interest rates can benefit many individuals and businesses. When interest rates are low, you can borrow money at a low cost. You can then use this loan to earn more capital and profit from the money even after repaying the loan and interest. Low interest rates tend to be advantageous for riskier assets like crypto and stocks, so they can be more attractive investment types than bonds or certificates of deposits (CDs). 

How High Interest Rates Affect Cryptocurrency

Higher interest rates influence cryptocurrency, stocks and commodities like oil. While cryptocurrency prices have plummeted, oil prices have spiked. Many investors consider cryptocurrency a good option during times of inflation, devaluation of the dollar and low interest rates. Lately, cryptocurrency has been behaving similarly to stocks, and higher rates can give you the opportunity to receive better returns with a lower risk. 

Rising interest rates, however, can make borrowing more costly and difficult, which could lead to a decline in investing in riskier assets like stocks and crypto. If investors sell their cryptocurrency to pay off high-interest debt, this could lead to a decline in the price of crypto.

What Do Cryptocurrency Interest Rates Mean for Your Investment Portfolio?

What Do Cryptocurrency Interest Rates Mean for Your Investment Portfolio?

Inflation, international conflict and rising rates can all affect cryptocurrency volatility and your investment portfolio. However, even with market volatility and higher interest rates, cryptocurrency should be part of your investment strategy to diversify your portfolio. Even if interest rates could make investing in cryptocurrency a bumpier investment type in the short term, cryptocurrency may lead to greater returns over the long term. 

A long-term strategy for investing involves continuing to invest in diverse assets and mostly disregarding outside factors. While holding a crypto-only portfolio may be too risky, a diversified portfolio that includes crypto can help you weather drops in the market while still receiving great returns. Short-term investors may sweat increases in interest rates, but if you are investing long-term for retirement, focus on riding out the highs and lows.

As a buy-and-hold investor, downturns can actually be more attractive, so now may be a great time for you to invest in crypto. 

Types of Cryptocurrency and Volatility

Cryptocurrency is influenced by more than interest rates. Increases in prices can come from financial institutions’ bullish adoption news. Bans and regulations, on the other hand, can trigger drops. Below are some of the types of cryptocurrency you may want to invest in, along with how volatile they are.

  • Bitcoin: The original cryptocurrency, Bitcoin runs on a blockchain. A blockchain is a ledger that logs transactions that are distributed across an entire network of computers. Bitcoin is safe and secure due to the required verification of solving a cryptographic puzzle to add a distributed ledger. This process is known as proof of work. Since its introduction, Bitcoin’s price has increased dramatically.
  • XRP: XRP is a cryptocurrency that can be used on Ripple’s network to facilitate the exchange of different types of currency, including major cryptocurrencies and fiat currencies. Similar to other types of cryptocurrency, XRP has seen dramatic growth in its price since its launch.
  • Tether: Tether is a stablecoin, which makes it unique among cryptocurrencies. A stablecoin is backed by fiat currencies, such as the Euro and the U.S. dollar. Hypothetically, a stablecoin like Tether retains a value equal to one of these denominations, which could mean the value of Tether is more consistent than other types of cryptocurrency. If you are wary of extreme volatility, you may want to invest in Tether.
  • Ethereum: Ethereum is a type of cryptocurrency and a blockchain platform, and as such, it is considered a favorite among program developers. Ethereum has many potential applications, such as non-fungible tokens (NFTs) and smart contracts. Similar to Bitcoin, Ethereum has had tremendous growth. 
  • Binance Coin: You can trade and pay fees on one of the world’s largest crypto exchanges, Binance, with the Binance Coin. Since the cryptocurrency’s initial launch, Binance Coin can be used for more than facilitating trades, such as booking travel arrangements or payment processing. You can also use Binance Coin to exchange or trade for other types of cryptocurrency like Bitcoin or Ethereum. Since its launch, this cryptocurrency’s gain has grown dramatically. 
  • U.S. Dollar Coin: Similar to Tether, U.S. Dollar Coin is a stablecoin. The ratio is one-to-one with the U.S. dollar. This type of cryptocurrency is powered by Ethereum and can be used to complete global transactions.

If you want to invest in cryptocurrency, you may want to open a self-directed IRA from Accuplan that allows you to invest in alternative assets. At Accuplan, we support the purchase of all cryptocurrency coins that are available via Coinbase. This means you can purchase up to 120 different types of cryptocurrencies with our crypto trading platform.

Contact Us at Accuplan About Fed Interest Rates and Cryptocurrency

At Accuplan, we offer a self-directed IRA that you can use to invest in cryptocurrency. IRAs held at brokerage firms or banks tend to limit the investment options to conventional categories, such as stocks, bonds and mutual funds. With a self-directed IRA, you can invest in more assets, including asset classes you are passionate about, as long as you follow all of the IRS guidelines for investing via your retirement accounts. 

Popular investments inside self-directed IRAs include actual real estate, private equity, cryptocurrency, gold and silver. Our dedicated experts can help you navigate these guidelines and ensure your IRA stays compliant. If you are interested in opening a self-directed IRA and investing in cryptocurrency, contact us at Accuplan to learn more about crypto interest rates and how you can invest.

Our information should not be depended on for investment advice and is provided for information and educational purposes only. It should not be relied on, nor is it intended to provide advice for accounting, taxes, investments or legal concerns. 

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