Part of the reasons why the cryptocurrency market is reacting to the strict monetary policies of the traditional system

in LeoFinance2 months ago

Hello dear readers and followers, reading the updated content about the events that mark the day to day life of the cryptocurrency market I came across a focus on the reasons why the cryptocurrency market reacts to the strict monetary policies of the traditional system.

So, I wanted to share with you all this interesting perspective as it can help us to plan our investment strategies in the cryptocurrency market, in order to be able to project what will be the next movement of the price action of the main currencies by market capitalization.

While reading I came across the following question; why does the price of Bitcoin react to US interest rates, and that is that while inflation figures in the United States are growing month by month and approaching double digits, the US Federal Reserve has continued with its strategy of a tighter monetary policy, and this somehow in recent months has negatively impacted the price action of the main cryptocurrencies.

For the Federal Reserve, the medium-term goal is to stimulate savings and control inflation by progressively raising interest rates, which makes access to credit more costly, in order to tame inflation, a dangerous development that could lead to an economic recession.

Now, it is said that it is plausible that rising interest rates will have an impact on Bitcoin, because it makes borrowing, which some traders leverage with, more expensive, since by incentivizing savings, there is less liquidity, so there is less appetite for risk.

Expectations, on the other hand, of a deteriorating economic outlook generate nervousness in the markets and cryptocurrencies have so far been no exception to the rule.

It is inferred that the interest rate increases enacted so far, do not seem to bend inflation as expected by the FED, and with respect to Bitcoin, the influence is not clearly determined, this if we take into account that the last increases pushed the price upwards.

SOURCES CONSULTED

JournalTime Why Does Bitcoin Price React To US Interest Rates?. Link

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