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What is the correlation between carry trade interest rates and the volatility of cryptocurrencies?

avatarbin zoDec 27, 2021 · 3 years ago1 answers

Can the interest rates in carry trades have an impact on the volatility of cryptocurrencies?

What is the correlation between carry trade interest rates and the volatility of cryptocurrencies?

1 answers

  • avatarDec 27, 2021 · 3 years ago
    Indeed, there is a correlation between carry trade interest rates and the volatility of cryptocurrencies. When interest rates in the low-interest-rate currency are low, investors tend to borrow money and invest in higher-yielding assets, such as cryptocurrencies. This increased investment can contribute to the volatility of cryptocurrencies, as the demand and price fluctuate. Conversely, when interest rates in the low-interest-rate currency rise, investors may be less motivated to engage in carry trades and invest in riskier assets, which can lead to decreased volatility for cryptocurrencies.