The Co — Relation between Interest Rates and Risk — On Assets: Will we see an Uptrend before the End of 2024?

Nagaya Technologies
6 min readSep 28, 2024

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The word “Return” and “Risk” represent two ends of an equation that somehow always work dynamically with each other. The higher the risk, something really is usually followed with higher reward for completing it and this concept could be applied to our DeFI Space. The DeFI Space with its unpredictable highs and lows has generally been seen as a “Risk — On Assets” and somewhat volatile at the current market conditions. So what is the Co — Relation between Interest Rates and these “Risk — On Assets”, can Recovery be possible within 2024?

Return and Risk

The words “Risk” and “Return” have been a part of every turn in our daily lives, it’s a symbiotic equation that is always with each other. From our academic years where taking risk studying overnight might yield better results on the exams to our adult years where taking a risk switching your current job might yield a better career in the long term. Risk and Return always represent a dynamic relationship as the more risk you take, the more likely you are to reach the outcome you seek.

Source: https://www.linkedin.com/pulse/understanding-risk-return-investment-khalil-korkomaz

With that in mind, there are also times when taking risks ends up backfiring and the outcome doesn’t really go your way especially when the outcome is something we care about such as in the Financial aspect. Entering the DeFI Space in 2021 might be a risk that ends well as the Bitcoin and other Digital Assets reaches its peak but holding it towards the next few years might be a risk too far as the whole space approaches its slump.

As Risk is a mainstay in our daily lives, the concept of “Risk Management” arises approaching the new century as our FInancial System becomes more complex. The definition of Risk Management essentially is a process of identifying, evaluating and eliminating risks that are involved with our actions and decisions. This means analyzing and evaluating both the fundamentals along with the technical side of the financial system to forecast its performance during the short term.

These Risk Management essentially lead to the general classification of assets as both “Risk — On” or “Risk — Off” according to its risk tolerance to market sentiments. Risk-on-risk-off (RORO) assets can also sway in patterns due to economic activity or the latest buzz around the nations as both could affect the perceived tolerance of its investors. This contributes to creating a healthy financial system where the risk does not get overblown and disrupts the economy.

Risk — On Assets generally have their value increased as the risk sentiment of the market grows, they thrive on times where the economic outlook and the asset fundamentals are strong which leads to investors taking more risk on the assets. For example, currently Artificial Intelligence is the next big technology to emerge and stocks that are currently engaged with A.I are reaching its all time high while many analysts consider it overvalued.

Risk — Off Assets are considered the safe haven of the economy and thrive in times where the economic outlook and many fundamentals turn sour which leads investors to secure its wealth from further downturn. For example, currently commodities such as Gold are also reaching an all time high as the contracting regulations for the economy leads to many nations experiencing high levels of inflation and uncertainty moving forward.

The standard benchmark for the Risk Levels within the economy for many investors has also always been its return and more specifically the Interest Rates given by the Central Banks. The Interest Rates forms a powerful tool for many Nations to control the amount of Money Supply circulating within the economy and an important part of Monetary Policy. These Deposit and Lending Interest Rates by the Banks form the most accessible tool for anybody to be involved in and therefore provide a good forecast for the flow of money supply towards other assets.

Flashing back to the midst of 2020 as we just entered the new decade and the world was in the midst of the pandemic, many nations had to roll out government aid and security checks to battle with the high unemployment and protect the purchasing power of the economy. This obviously led to lower interest rates as Loans became more accessible and money supply of many nations increased which eventually resulted in Inflations for many nations.

Argentina, Turkey dan even the United States experienced different levels of Inflations which lead to Interest Rate hikes to roll over the money supply in circulation. As Interest Rate reaches its peak in 2024, investors appetite for Risk — Off assets such as Gold, Time Deposits and Bonds start to gain traction while inflows for Risk — On Assets such as Cryptocurrencies, Stocks and Forex dried up with investors seeking refuge during uncertain times.

As we approach the final leg of the year, 2024 has seen a much needed uptrend in the economy of many nations as the contracting regulations seem to work its way. With Inflation being under control within many nations and unemployment levels starting to improve, many nations are rolling back its regulations by reducing interest rates to empower growth in GDP and Purchasing Power that will stabilize the economy within the nations. Will we see a rejuvenated DeFI Space by the end of the year?

Ending the Year with a High

Most would point the destination of the economy to the regulations imposed by the world reserve country that is the United States. As United States will go through an Elections and new leaders are presenting their plans for the future, Federal Reserve are issuing a signal that it may carry on a rate cut within the next general meeting in September and this would be good news for Risk — On assets such as Cryptocurrencies and the DeFI Space.

Source: https://www.fool.com/investing/2024/01/03/these-3-growth-stocks-are-screaming-buys-for-2024/

The United States is currently a major player within the DeFI Space and it has maintained an interest rate level of 5.5% for more than a year since June 2023. This level has been the record high interest rate administered by the United States not seen since the Great Depression more than 15 years ago and leaves a lot of room for the Federal Reserve to make corrections if necessary to boost the economy for the final quarter of 2024.

This would trigger some much needed inflows to the DeFI Space who are currently heading for stagnation so far during the second quarter. Bitcoin and other Digital Assets has peeled back from it’s all time high level achieved in March 2024 while the general market cap tip-toed around $2 — $2.5 Trillion levels and failed to break its $3 Trillion mark. DeFI and RWAs are slowly growing in the 2nd quarter while leaving plenty of optimism to continue its trajectory forward.

With all the innovations and development going on in the DeFI Space, it is still a thriving industry even as the economy stalls in 2023 and 2024. The emergence of Artificial Intelligence and Web3 projects within the DeFI Space will help drive the interest back while the growing list of Spot ETFs should help drive institutional adoption. This paired with relaxing of Interest Rates should lay the groundwork for the DeFI Space to end the year with a high as long as the breakthrough continues to grow.

We at Nagaya Technologies certainly believe that there is a huge potential that is still waiting to unfold in the exciting 2024 we have right now. This moment is the right time to push boundaries and capabilities of blockchain technology to ensure greater innovation. Nagaya being the World’s First Hybrid Digital Asset is the result of combining the enormous potential of Blockchain Technology with Real World Assets. Intrigued to know more about the Nagaya journey, you can read our whitepaper through our official website at www.nagaya.co

Or you can obtain your Nagaya now through the Latoken Platform at https://latoken.com/exchange/NGY_USDT

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Nagaya Technologies

NAGAYA (NGY) is a Gold-Backed Cryptocurrency with Subsidiary Projects. We aim to build Trust and Value through LEGALITY and TRANSPARENCY. https://nagaya.co/