Macroeconomics

The impact of American monetary policy on cryptocurrencies

Since 2022, the American Federal Reserve (Fed) has adopted a restrictive monetary policy to combat rampant inflation. With a succession of interest rate hikes, global financial markets — including cryptocurrencies — have experienced notable shocks.

The increases in benchmark rates have several effects on the crypto ecosystem. First, they make riskier assets, such as cryptocurrencies, less attractive. Investors turn to assets deemed safer, such as higher-yielding U.S. bonds. This has led to a decrease in liquidity and a correction in the prices of major cryptos like Bitcoin (BTC) and Ethereum (ETH) in 2022 and 2023.

Next, the tightening of liquidity has impacted the appetite for innovation and speculation. Many blockchain projects and crypto startups have seen their funding decrease. This has slowed the development of new projects, although the technological fundamentals remain strong.

However, since the end of 2023, the anticipation of monetary easing (gradual rate cuts) has renewed hope among crypto investors. A lower rate environment encourages risk-taking and interest in alternative assets. Furthermore, distrust in traditional monetary policies enhances the appeal of Bitcoin as a decentralized safe haven.

In summary, American monetary policy exerts a direct influence on the volatility and valuation of cryptocurrencies. A cycle of low rates could rekindle interest in digital assets, while a persistently restrictive policy would weigh on their dynamics. Understanding these mechanisms is essential for anticipating trends in the crypto market in the coming months.