1. Interest Rates Rise:
When The Fed raises interest rates, investors tend to withdraw funds from risky assets, including crypto, and shift their investments to safer instruments like bonds or fixed-yield assets.
Interest rate hikes also increase borrowing costs, which can reduce liquidity in the market, including the crypto market.
2. Interest Rates Fall:
If The Fed decides to lower interest rates or maintain low interest rates, this could be a positive catalyst for the crypto market.
Low interest rates often encourage investors to seek assets with higher returns, making crypto assets more attractive.
3. Quantitative Easing (QE) Policy:
When The Fed prints new money through QE policies to stimulate the economy, asset prices like stocks and crypto tend to rise due to excess liquidity in the market.
However, if this policy is halted or The Fed conducts "quantitative tightening" (withdrawing liquidity from the market), then the crypto market could be pressured.
Current Situation:
Currently, The Fed is still in hawkish mode, focusing on controlling inflation through higher interest rates.
The crypto market has become more volatile as investors assess the impact of tight monetary policy on the global economy and market liquidity.
On the other hand, this uncertainty also creates opportunities for crypto, which is seen as a hedge against inflation, such as Bitcoin.