🥰🥰How does the Fed influence cryptocurrency prices? When will prices increase? When will prices decrease? 🥰🥰 (Part 2).

🤩III. Monetary easing or tightening policies

1. Monetary easing

When the Fed injects liquidity into the economy through quantitative easing programs, cheap money flows into speculative markets, including cryptocurrencies. This usually drives up cryptocurrency prices.

2. Monetary tightening

When the Fed withdraws liquidity (reducing the balance sheet), capital flows out of risk assets. This can lead to a decline in the cryptocurrency market.

🤩IV. The strength of the USD.

1. Strong USD: Cryptocurrencies often decrease in value as investors shift to holding USD, a safe asset.

2. Weak USD: When the USD depreciates, cryptocurrencies may become more attractive as a store of value.

🤩V. Market sentiment and systemic risk

The decisions and statements of the Fed have a strong influence on market sentiment. Concerns about economic recession, financial instability, or banking crises can drive up cryptocurrency prices as they are seen as a safe haven.

🤩VI. History

1. 2020-2021: When the Fed implemented monetary easing policies and lowered interest rates to near 0 during the COVID-19 pandemic, cryptocurrency prices surged.

2. 2022: When the Fed rapidly raised interest rates to combat inflation, cryptocurrency prices fell sharply as capital flowed out of risk assets.

🤩In summary, the Fed does not directly control cryptocurrency prices, but their policies profoundly affect liquidity, market sentiment, and capital flows, thereby impacting cryptocurrency prices.

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