Can cryptocurrencies be influenced by economic affairs?

Image by Tumisu from Pixabay

Generally, people from well-developed countries with well-functioning economies tend to keep their life savings in banks, and some take those savings and invest them in stocks like APPL, MSFT, FB, etc., or trade CFDs. Most of them will invest in tech stocks because they know they are bullish most of the time due to the technological advancements that happen regularly. When they reach retirement age, they will know that they have a starting point in life. In 2003, another business and investment opportunity came to life, "Cryptocurrencies".

The birth of cryptocurrencies

Bitcoin was created in 2008 by Satoshi Nakamoto and is the godfather of cryptocurrencies and today the market tends to follow the pattern of Bitcoin. Some might say that Bitcoin does not affect the flow of the Global Crypto Market Cap, but I'm sure we all can see that if BTC moves, it will shake the markets. Today, if you want to mention the word cryptocurrency to someone new, they will ask if you mean bitcoin. Even I thought that Bitcoin is a cryptocurrency but later I realized that Bitcoin is a digital asset classified under Cryptocurrencies and it just holds the main headline in Cryptocurrency.

Cryptocurrency adoption

The figure above shows the history of the total global market capitalization of cryptocurrencies and this symbolizes the rate of adoption. In January 2014, the global market capitalization was only $10 billion, and in 2021, the global market capitalization will reach $3 trillion. Imagine how it has grown in just 7 years and ask yourself where it will be in 2030. People are now accepting cryptocurrency as a digital asset, payment method, smart contracts and many more, which has now forced financial institutions that previously banned cryptocurrencies, but now they are calling for cryptocurrency regulation. By doing this they are now admitting that cryptocurrencies are here to stay and those who doubted are now seeing the green light and being accepted.

Impact of Economic Matters in Relation to Cryptocurrencies

As we know, the world leaders have been trying hard to fight cryptocurrencies and most of the times whenever they have done that, we have seen the market pull back and we would believe that they are controlling it in that way. In fact, no matter how hard they tried, they can never shut it down because it's decentralized, and that's why they're fighting it. Now that they are forcing centralized exchanges to be regulated, they know they have some impact on crypto market movements. Now you will find that when the Federal Reserve (FED) releases data on Interest Rate Decisions (IRD), it also affects the crypto markets. To prove this, when the IRD is released the S&P500, US30 and US100 will respond and today if you want to look at them on the charts they will move in line with the crypto markets.

The chart above shows the performance of the S&P500 and it looks like it is now pulling back. In November 2021, the S&P500 started to decline, and on June 24, 2022, it just ended its week with a bullish candle. I suspect the fall in the S&P500 was a reaction to the war between Ukraine and Russia. in February, when Russia fully invaded Ukraine, we saw the market continue to decline. Below I show you the performance of Bitcoin over the same period.

In November 2021, Bitcoin started to decline and now sits at the 200 simple moving average, just like the S&P500, it looks like it is also rebounding. Just looking at the H4 and D1 I can guess that the price will probably come back to $25,000. So as the crypto market grows and is now among the most liquid assets in the financial markets, it is now an integral part of everything that happens in financial circles as it continues to grow and is embraced by many people. Not everyone can open a bank account and use services freely, but in crypto markets, everyone can own a crypto wallet and crypto assets. Things like interest rate decisions and inflation now play a major role.

Some may not understand how inflation plays a role in cryptocurrency trading, remember that it is always recommended to use money that you don't want to use like tomorrow on cryptocurrency because it is a risky investment. So people have to use the spare money, but when we look at the current economy, we see that most people work just to pay the bills and put food on the table, and have no money to spare or for savings. Of course this will slow the adoption of crypto, people want the idea but I think they don't have enough victims due to economic problems beyond their control.

If we look at technology stocks, we will see that they are also affected by economic operations. If the new iPhone comes out today, you will only use the remaining money to buy, no normal person will use their rental money to buy luxury goods. If you see tech stocks going up, it's a sign that the economy is working better now, and it also means that people have some money to invest in cryptocurrencies, so Economic Policy will have an impact on cryptocurrencies forever.

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