The “easy money” era, such as the investment in bitcoin, may end as central banks begin lowering bond purchases and raising interest rates. An event that could turn out to be bad news for traders and cryptocurrency investors.
Writing an onion piece in Forces, Professor Panos Mourdoukoutas, chairman of the Department of Economics at the LIU said that stocks of tech companies and bitcoins investments will likely deflate.
The price of Bitcoin has been been volatile recently, breaking the $7,000 mark this year and nearing $8,000. In markets like Zimbabwe, the price of bitcoin is about $13,000 due to the shortage of foreign currency.
The US Treasury’s 10-year yields have now reached 2.50%. That’s up from just 2.12% less than two weeks earlier., and experts believe that this may be bad for bitcoin.
“This is bad news for investors pursuing bubble assets , such as Bitcoin and overvalued technology stocks, which are very likely to deflate, as was the case with internet stocks in 2001,” said Professor Mourdoukoutas.
“With central banks slowing or ending their bond-buying programs – and with some high short-term interest rates – the easy money era is over,” he added.
The bitcoin trade and cryptocurrency prices firm, helping investors to make big profits. But there are fears that “these investors could lose their millions faster than they did,” if the current “market momentum disappears” and finally take a turn in the opposite direction.
Professor Mourdoukoutas explained that higher interest rates could put pressure on Bitcoin prices by increasing the “opportunity cost” of the money used to buy Bitcoins. This is applied to investors who buy leveraged Bitcoins with borrowed money. Higher interest rates can also put pressure on Bitcoin’s prices by restoring “credibility” to central banks and national currencies they control.
“This will make alternative currencies like Bitcoin less attractive to the general public,” he added.