Fed Rate Hikes Could Lead to Bitcoin Vulnerability, Goldman Sachs Says

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Many investors have been viewing Bitcoin investments — and investments into Ethereum and some altcoins, for that matter — as a hedge against inflation. But as Bitcoin gains widespread adoption, the attraction of cryptocurrency as a form of money not tied to traditional banks, investments, or monetary policy diminishes.

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Goldman Sachs analysts recently explained in a note reported by Bitcoin.com: “Over the last two years, as Bitcoin has seen wider mainstream adoption, its correlation with macro assets has picked up.”

As a result, the upcoming Fed rate hikes could affect Bitcoin’s price in the same way interest rate hikes and higher bond yields affect the stock market. In the past month, the tech-heavy Nasdaq-100 index fell 13%, the analysts wrote. And the same fate could befall Bitcoin and other crypto investments. In the past 30 days, Bitcoin fell 20.5%, although the past week saw it climb nearly 7%.

“These assets will not be immune to macroeconomic forces, including central bank monetary tightening,” the Goldman Sachs analysts wrote.  

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The analysts believe the Fed could raise interest rates even more than the projected five times many expect. Goldman Sachs said the Fed could increase the rate at each meeting, leading to a total of seven rate hikes over the next 11 months.

Discover: Bitcoin by Proxy? Investment Experts Debate Value of Crypto ETFs, Proxies vs. Direct Holdings

Some investors are expecting a crypto winter, which would see Bitcoin drop substantially and fail to recover “for a long time,” Business Insider reported.

However, BlackRock — a massive asset management firm — announced intentions to launch a blockchain and tech ETF, according to an SEC filing in late January. Named iShares, the fund will include 35 or more companies — crypto miners, blockchain tech developers, and other companies building decentralized finance (DeFi) infrastructure.

BlackRock isn’t the only firm that sees a future in blockchain infrastructure investments. Even the Goldman Sachs analysts, who appear to be bearish about Bitcoin in the near future, indicate that blockchain technology and increasing interest in the metaverse could lead to crypto recovery down the line.

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“Over time, further development of blockchain technology, including applications in the metaverse, may provide a secular tailwind to valuations for certain digital assets,” the analysts stated in their note.

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About the Author

Dawn Allcot is a full-time freelance writer and content marketing specialist who geeks out about finance, e-commerce, technology, and real estate. Her lengthy list of publishing credits include Bankrate, Lending Tree, and Chase Bank. She is the founder and owner of GeekTravelGuide.net, a travel, technology, and entertainment website. She lives on Long Island, New York, with a veritable menagerie that includes 2 cats, a rambunctious kitten, and three lizards of varying sizes and personalities – plus her two kids and husband. Find her on Twitter, @DawnAllcot.
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