How is the current macroeconomic crisis impacting the cryptocurrency market?
Changes such as rising interest rates in the US and rising inflation have a direct effect on the crypto market, which in turn is proving resilient.
Since their conception, cryptocurrencies – especially Bitcoin – are seen as a very promising technology for, among other reasons, they operate in a decentralized way, more independent from more traditional economies.
However, this does not mean that the crypto market is totally disconnected from the economic landscape, whether on a large or small scale. If there’s one thing that the volatility of cryptocurrencies this year shows us, it’s that macroeconomic effects have a big influence on what happens in all types of investments.
Traditional investments and the crypto market: what is the relationship?
Moments of financial crisis such as the one we are currently experiencing in several countries, such as the United States, Argentina and even Brazil, tend to lead investors to withdraw capital from volatile investments to reallocate them to sources with safer profitability, such as Treasury Direct, the Bank Deposit Certificate (CDB) and the US fixed income securities, the so-called bonds.
This means a monetary loss on investments such as traditional stocks, real estate funds and, of course, cryptocurrencies. We have recently seen how the increase in interest rates in the US after the Federal Reserve Bank meeting that resulted in a change in the US Consumer Price Index (CPI) led to immediate volatility in the value of bitcoin, even though the currency has been recover in the following days.
Much of this volatility is due to the relationship between bitcoin and the dollar, one of the most important fiat currencies on the planet (if not the most important) and whose appreciation or devaluation has important consequences for the macroeconomic scenario, influencing the price not only of BTC, but also but of countless financial assets, whether digital or not.
On a more positive note, the “king of cryptos”, as I like to call it, has been very resilient, maintaining an average of 20,000 amid this streak of ups and downs. This shows the strength that bitcoin and the cryptocurrency market as a whole have been acquiring, but it is worth mentioning caution, especially in this moment of uncertainty and global economic instability that we are experiencing, in which there is no way to predict a medium to long-term period in that it is safe to take on very risky investments.
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