Looming Federal Interest Rate Could Affect Cryptocurrencies

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The Federal Reserve is considering an increase of interest rates and it could affect deflationary cryptos says Robert Leshner. Leshner spoke to Fortune about his company Compound.

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Interest rate hike to be expected soon

Leshner, in an interview, points out that digital currencies have only existed in the US economy with a low interest rate. If this begins to reverse, the series of hikes in rates by the federal reserve may spell trouble for cryptos.

Presently, the odds of increase in rates by 200-225 bps so far at the next Fed meeting is more than 90%.

This could hit the market hard, says Leshner. He also says:

“We’re finally starting to enter an environment of rising interest rates which crypto has never seen before, and it’s going to be potentially challenging to the price of a lot of crypto assets just like it will be for a lot of assets in general, including equities.

If we save money in a bank, we can earn interest. The bank pays for this by lending our money to other people in return for more interest. This is obviously a very simplified explanation, and in recent times, the amount of interest that we can earn has been minimal.”

Maybe this is why no one has asked crucial questions such as why the same can’t be done with crypto assets. Why should anyone pay to hold bitcoin?

To solve this problem, Leshner formed the company. The self-proclaimed interest rates guy says the company allows token holders to store their digital currencies and earn interest.

Sadly, it does not support bitcoin for now. However, it does list up to four tokens and may include more as time passes. Users on the platform can vote on a particular stablecoin to be added.

The role of stablecoins

Leshner also predicted the influx of stablecoins, claiming that there may be up to fifty of them soon. He is surprised that so many firms are vying to enter industry because of the benefits it offers issuers.

Investors who are eager to purchase the coins are basically lending issuers money without interest. They also pay transaction charges for the service.

The company offers an interest-paying marketplace where coins can be borrowed or lent. The founder hopes that the increase in tokenization of fiat currencies will draw in arbitragers and traders to the site.

Leshner was asked about the benefits of such a marketplace, over the established forex market and he said:

The advantage of tokenization is it brings transparency and programability to currency. When dollars are open to blockchain, there’s so much more innovation that can occur.”

Princess Ogono is a writer, lawyer and fitness enthusiast. She believes cryptocurrencies are the future. When she's not writing, she spends time with her adorable cat, Ginger and works out often.


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