By Joseph Young
On March 3, Federal Reserve Chair Janet Yellen announced at the Executives’ Club of Chicago that the Fed is likely to increase interest rates later this month. As a result, Bitcoin price is also likely to increase, as the value of reserve currencies including the Japanese yen and Chinese yuan falls.
When the Fed increases its rates, the value of the US dollar naturally increases. Even with a speculation or a forecast from the Federal Reserve, the value of the yen, yuan and the Korean won would fluctuate.
“We currently judge that it will be appropriate to gradually increase the federal funds rate if the economic data continue to come in about as we expect. Indeed at our meeting later this month, the committee will evaluate whether employment and inflation are continuing to evolve in line with our expectations. In which case, a further adjustment of the federal funds rate would likely be appropriate.”
Already the Fed announcement is starting to affect the value of the Japanese yen, a currency which has shown more resilience to the increasing Fed rates in comparison to other currencies.
The year-to-date (YTD) return of the Japanese yen against the USD is -2.5 percent and is likely to increase in the upcoming weeks as the Fed prepares to increase interest rates.
Why currency devaluation in Japan, China & Europe is important
Currently, the Japanese Bitcoin exchange market controls over 52 percent of the global Bitcoin exchange market. China, Europe and South Korea make up the top five largest Bitcoin exchange markets, right below the US.
When the Fed decides to increase rates again later this month, it will lead to the devaluation of the yen, yuan and euro as the dollar strengthens. If these currencies begin to devalue, high profile investors and traders will seek for alternative safe haven assets and stores of value such as Bitcoin or gold that are detached from the general monetary system.
Traders who consider Bitcoin as a wealth protection and management product, which is the vast majority of Bitcoin users as of current, will move onto Bitcoin in order to protect their assets from devaluation.
Based on the current Bitcoin price trend, it is likely that Bitcoin price could reach $1,300, especially as it nears the final approval date of the Winklevoss Twin’s Bitcoin ETF COIN.
Analysts also predict that Bitcoin price will reach new highs if the rising Fed rates and the March 11 approval of the COIN ETF coincide.
In particular, the approval of the COIN ETF will immediately open the Bitcoin market to mainstream investors and investment funds, which are expected to exponentially increase the market size of Bitcoin by hundreds of millions and even up to billions of dollars.
Previously, Cointelegraph reported that Bitcoin price hit its all-time high with $1,228 in average markets. Bitcoin price is currently over $1,280 and new highs formed by the launch of ETF and Fed’s rising interest rates will likely form new resistance levels.