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The Influence of Monetary Policies on Crypto Markets

Cryptocurrencies, especially Bitcoin and Ethereum, are often hailed as an alternative to the traditional financial system. However, they remain significantly influenced by the monetary policies of major central banks, such as the U.S. Federal Reserve (FED), the European Central Bank (ECB), and other global institutions. This article explores how recent decisions by these institutions are shaping the crypto market and their short- and long-term impacts.


The Link Between Monetary Policies and Cryptos

Monetary policies, including interest rate changes and quantitative easing programs, directly affect traditional financial markets and, indirectly, cryptocurrencies. During accommodative monetary policies, low interest rates favor speculative assets like Bitcoin and Ethereum, as investors seek higher returns. Conversely, when central banks raise rates to combat inflation, cryptocurrencies experience selling pressure because non-yielding assets become less attractive.



Recent Decisions by Central Banks

  • The U.S. Federal Reserve (FED): In 2023, the FED implemented multiple rate hikes to combat persistent inflation. These moves curbed risk appetite, leading to a correction in crypto markets. However, announcements of potential pauses in rate hikes triggered some recovery, highlighting the crypto market’s sensitivity to FED policies.

  • The European Central Bank (ECB): The ECB adopted a similar strategy by raising benchmark rates, limiting euro liquidity. This also impacted trading volumes in Europe, often denominated in euros.

  • Emerging Market Central Banks: Some, like Brazil’s central bank, have taken a more accommodative approach, boosting crypto adoption as a hedge against unstable local currencies.


The Impact on Bitcoin and Ethereum

Bitcoin : la "réserve de valeur numérique"


  • Bitcoin: The "Digital Store of Value"Bitcoin is often likened to digital gold due to its limited supply and independence from traditional monetary policies. However, it remains correlated with risk assets. When rates rise, Bitcoin loses appeal as a speculative investment. Conversely, during periods of low rates or monetary easing, it enjoys strong demand.

  • Ethereum: The Engine for Decentralized ApplicationsWhile Ethereum is also a speculative asset, its value is supported by the growing adoption of decentralized applications and NFTs. Its price fluctuations are more tied to the overall economic activity within the crypto ecosystem. However, reduced global liquidity directly impacts investments in Ethereum-based projects.


Cryptos as a Response to Monetary Uncertainty

In countries where monetary policies are poorly managed or local currencies are unstable, cryptos are gaining traction. Bitcoin, for example, is used as a hedge against hyperinflation in Venezuela and Turkey. Ethereum, on the other hand, plays an increasing role in remittances and cross-border payments.


Long-Term Outlook

As cryptocurrencies mature, their correlation with monetary policies could diminish. Institutional adoption, technological advancements like Ethereum 2.0, and diversified use cases might strengthen their resilience to rate fluctuations. However, in the short term, the market remains highly sensitive to central bank announcements.


The monetary policies of major central banks continue to play a central role in shaping the evolution of crypto markets. Bitcoin and Ethereum, while born from independent technology, remain influenced by global liquidity fluctuations and risk appetite. For crypto investors, keeping a close eye on central bank decisions is crucial for anticipating market trends.

🔗 Discover more Guild articles at https://www.guildeforex.com/blog

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