An ‘Interest Rate’ is the percentage charged by a lender to a borrower for the use of assets, typically expressed as an annual percentage. In financial markets, interest rates influence the cost of borrowing and the return on savings, thereby affecting economic activity. They are a fundamental tool used by central banks to manage inflation and stimulate or restrain economic growth.
Context
Changes in benchmark ‘Interest Rates’, particularly those set by major central banks like the Federal Reserve, have a substantial effect on the cryptocurrency market. Higher interest rates can reduce the attractiveness of speculative assets like cryptocurrencies by increasing the opportunity cost of holding them. Conversely, lower rates can encourage investment in riskier assets. Current monetary policy discussions heavily influence crypto market sentiment and liquidity dynamics.
The crypto market experienced a recent dip driven by significant liquidations and investor positioning ahead of a Federal Reserve interest rate decision.
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