Hi HODLers and Hiveans,
For those only living in the CryptoWorld, this might seem like nothing but this is huge. Only a few years ago, we thought we would be sitting at 0% interest rates forever and that this would be "the new normal".
It is important because this is the basis for all kind of debt instruments and yield-bearing assets. This is the closest we have to the risk-free rate.
US 10Y Yield
Then other interests rates adjust on top of that. If you have a good credit score and want to borrow a house, you will pay the 4% + the delta of risk that the bank is taking by lending you money. Which is close to a total of 7% currently.
This has an impact on how much you can borrow, etc...
What is the impact to Crypto and Tech stocks?
When interest rates are high, you have a choice between investing in risky assets such as crypto/tech stocks and hoping they go up a lot or just putting this in cash and earning 4%. This was a choice investors DID NOT HAVE 2 years ago.
Also when valuing companies/crypto projects; the actualisation rate used has also increased making company's valuations lower.
As you divide the future valuation of X company by the actualisation rate, as this actualisation rate grows, your expected future value is getting lower. Therefore, a lot of investments do not make financial sense anymore.
There are many other things that will be affected by this but as a summary, the economu, stock market and asset prices will be negatively affected if interest rates continue to go up.
Stay safe out there,