Every now and then we hear: "The Fed raised interest rates" or "lowered them". But what does this mean? And what is its effect on the crypto market?
🟠 First: When the Fed raises interest rates (Tightening)
The goal of raising interest rates is to reduce market liquidity to combat inflation.
People prefer to put their money in the bank rather than risk it and invest.
Loans become more expensive, leading to less investment in risky assets like Bitcoin.
The dollar strengthens, making Bitcoin less attractive to investors.
The result?
The pressure on crypto is negative.
🟢 Second: When the Fed lowers interest rates (Easing)
The goal here is to stimulate the economy by injecting liquidity and reducing borrowing costs.
People withdraw their money from banks and look for better investment opportunities.
Demand increases for risky assets like Bitcoin and Ethereum.
The dollar weakens, making crypto more attractive as an alternative.
The result?
The impact on the crypto market is positive.
So, on what basis does the Fed decide to raise or lower interest rates?
It depends on two important indicators:
1️⃣ Inflation indicator (CPI / PCE)
This measures rising prices. The Fed tries to keep inflation at 2%.
High inflation → a strong possibility of raising interest rates → liquidity withdrawal → crypto is negatively affected.
Low inflation → room to reduce interest rates → inject liquidity → crypto moves positively.
2️⃣ Employment indicator (NFP) or unemployment
The Fed sees whether the market can bear high interest rates or not.
Strong employment and low unemployment → the Fed can raise interest rates → negative pressure on crypto.
Weak employment and high unemployment → likelihood of lowering interest rates → positive support for crypto.
In summary:
The cryptocurrency market is very sensitive to any changes in liquidity or investors' appetite for risk, and the Fed's decisions play a major role in moving the market.
So, if you are an investor or interested in crypto, it is essential to follow:
Fed decisions
Inflation indicators
Employment data
#BTC #Smart #MarketRebound #Binance
