rainbow cat's Profile | OKX

$BTC $ETH Why does the US Treasury yield remain high, causing fewer people to borrow money to trade crypto? Let's take a look: The Federal Reserve interest rate (federal funds rate) and US Treasury yields. When these rates are high, money becomes "more expensive," and the cost of all borrowing activities rises. In crypto trading, there are mainly two common ways to borrow money: 1. Exchange leverage/contracts (most common) For example, when you open perpetual contracts or leveraged spot positions, the exchange charges you a funding fee (Funding Rate) or borrowing interest. This fee is not fixed; it changes with the overall market interest rate environment and the balance of long and short positions. 2. Borrow stablecoins (USDT/USDC) to buy crypto Some people borrow USDT from lending platforms to buy Bitcoin. Borrowing USDT also requires paying interest. Why does borrowing money to buy crypto become more expensive when US Treasury/Federal Reserve rates rise? You can understand it this way: - The "base price" of money is raised Previously, when banks or government bonds could give you 1%-2% interest, borrowers only needed to pay slightly higher interest. Now that government bonds can offer around 5%, borrowers naturally have to pay higher interest; otherwise, no one is willing to lend you money. - Funds become tighter When the Fed raises or maintains high interest rates, money in the entire financial system becomes "more expensive" and scarcer. The funding costs for exchanges and lending platforms also rise, and they pass this cost on to those borrowing to trade crypto. - Actual performance You will find: - Contract funding rates are more likely to turn positive (longs pay shorts, or fees increase) - The annualized interest rate for borrowing USDT rises - The cost of leverage increases, so many people are less willing to open high leverage positions A simple example Suppose you borrow $10,000 to buy Bitcoin: - When interest rates are low: annual interest might only be $200-$300. - When interest rates are high: annual interest might rise to $500-$800 or even higher. Borrowing money to trade crypto becomes clearly more expensive. If the coin price doesn't rise enough, the interest will eat into your profits or even cause losses. Many people will reduce leverage or be forced to liquidate. This really enlightened me; I feel like I can do it again.

rainbow cat

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