US Factor and the Crypto Market

Explained in simple terms | CROWN ACADEMY

The United States is one of the financially powerful countries globally and the economic situations therein, oftentimes, do have implications for the global financial market. The “hikes” in interest rates by the US Federal Reserve, for instance, appears to be pushing the crypto market into a new era of uncertainties apart from the bearish trends.

When the Bitcoin prices dropped to around $35,000 in late January with almost 50% drop from its all-time-high of $69,000 it touched in November 2021, crypto analysts were very quick to point to the financial ups and downs in the US market.

US Versus Inflation

Typically, the US Federal Reserves increased the interest rate to tighten inflation. This hike in the interest rates have made many institutional investors and retail investors to rotate away from the crypto currency and stock markets due to the heavy risk involved and are focusing more on safer bets or even holding cash in hand.

This has contributed to the crashing of the market and has proved to be a tough time for many investors. Since prices are determined by the forces of demand and supply, the Federal Reserve’s decision to bring prices down by constricting the demand is making it more expensive to borrow money which is forcing consumers to buy less thus keeping the prices under control.

How the Hike in Interest Rates is Affecting the Crypto Market?

When interest rates are high, consumers are less likely to spend money on assets and there will be a complete rotation in the currency market. Consumers also, will rather choose to hold it in cash and this proves very destructive considering the currency market sentiments.

For cryptocurrencies however, the trends of inflation also affect their value. The bottom line is that the more cryptocurrencies behave like asset classes from traditional finance the better as it will attract more institutional as well as retail investors to the market. Bitcoin, for example, has been trading in tandem with the stock market and all coins tend to follow bitcoin’s movement especially when market corrections happen.

By way of concluding, although the stock market performances and crypto performances are not exactly correlated, cryptocurrencies have continued to gain transnational recognition and dips are often seen by different crypto analysts as an opportunity for new investors to get into the market.

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