Crypto Market Braces for Impact as Easy Cash Dries Up

The crypto market is preparing itself for the impact of the end of the easy-cash era, as markets feel the pinch from the sharpest jump in interest rates in decades. Silicon Valley Bank’s collapse in early March, following heavy losses on its bond portfolio, has alerted markets to the fact that monetary tightening will likely bring more pain.

Big developed economies such as the United States, Europe, and Australia have raised rates by almost 3,300 basis points collectively since late 2021. According to S&P, U.S. and European default rates are expected to reach 3.75% and 3.25%, respectively, by September, more than double the rates of September 2022. Pessimistic forecasts of 6.0% and 5.5% are not out of the question, the agency warns.

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Crypto’s Pain and Gain

Cryptocurrencies have felt the pain of rising interest rates, but they’ve also experienced unexpected gains amidst the turmoil. Bitcoin, in particular, has surged by around 40% in just 10 days, thanks to market expectations that rate hikes were nearing their peak. However, there are reasons for caution when it comes to crypto assets.

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Several high-profile crypto firms collapsed last year, leaving customers with substantial losses, while U.S. authorities are cracking down on the sector’s largest players. Banks are also a source of concern after SVB’s collapse and Credit Suisse’s forced merger with UBS led to turmoil across the banking sector.

Investors in the crypto sector are feeling both excitement and caution amidst the turmoil. Bitcoin has been the unexpected beneficiary of broader market trends, surging by around 40% in just a matter of days, with analysts pointing to market expectations that rate hikes were nearing their peak.