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How that Impacts Growth Stocks and Cryptos

Growth assets, which includes tech stocks and cryptos (if we can loosely call cryptos “assets”), usually borrow money to keep growing. Those loans are variable rate. Should interest rates go up, their operating costs increase. Some might not be profitable in that environment.

Likewise, investors borrow to have additional capital to invest. When interest rates go up, their cost of borrowing goes up, so they have less money to invest. That means less demand for stocks and cryptos.

Typically, in this kind of environment investors will look at value plays over growth stocks for this reason. This is called the “value rotation.”

How that Impacts Growth Stocks and Cryptos

They’ll also look at financial stocks, because banks can pass along the costs of rising interest rates to consumers, and commodities, because those will be increasing in value with inflation.

That doesn’t always happen though.

How To Make Money With This

For me, the obvious way to play this, regardless of anything else, is to recognize that bond yields will go up (which is bad for bond holders). So, the inverse of the 20 year treasury bill is likely to be profitable. I thus hold (and have for months now) the $TBF.

But how will cryptos and Bitcoin fare?

The narrative of point 3 didn’t play out the last time the FED did this. Here’s how things went with the $QQQ (top 100 stocks of the Nasdaq, which is a tech heavy—so growth—index).

The market declined going into the rate hike, but by the time the FED reversed course, it was already at all time highs.

Here’s how cryptos reacted (this is the Total Market Cap, which was mostly BTC at the time).

The crypto market actually went up after the rate hike and declined when the FED reversed course.

What this means is that the narrative might be quite wrong. In fact, most recent history shows that BTC and cryptos bounce back just after the actual hike.

It’s the inverse of typical stock advice: sell the rumor, buy the news. In this case, the anticipated bad thing isn’t so bad, so while the lead up is painful, it makes for a nice entry point.

We’ll likely get some downward pressure for a bit, notably, but this may set up BTC for a very nice run later in 2022.

If you’ve been worried about missing out, you might just be a few months away from a spectacular bargain in cryptos.

Happy Trading!