Macroeconomics and Crypto
Connection between interest rates, inflation and crypto market movements.
Crypto markets are not isolated — deeply intertwined with the global macroeconomy, especially the monetary policy of the US Federal Reserve.
Key macro factors:
1. Interest rates (Fed Funds Rate) • Low rates (easy money) = capital flows to risky assets (crypto, stocks) • High rates (tight money) = capital goes to bonds, leaves crypto • 2020-2021: rate 0% → crypto boom • 2022-2023: rate 5%+ → crypto crash
2. Quantitative easing (QE) vs tightening (QT) • QE: Fed prints money, buys bonds → liquidity rises → crypto rises • QT: Fed reduces balance sheet → liquidity falls → crypto falls
3. Inflation • High inflation: BTC as hedge hypothesis (sometimes works, sometimes doesn't) • Real interest rate (nominal − inflation) is the more critical factor
4. DXY (US Dollar Index) • Stronger dollar = weaker crypto (inverse correlation) • Weaker dollar = stronger crypto typically
5. S&P 500 correlation • Crypto moves with risk assets • High correlation with S&P 500 in risk-off periods