Cryptocurrencies are not active in a parallel world, but rather active “real” and, as such, are affected by what happens in the global economy
In March 2020, the world realized that there was an enemy as devious as it was dangerous: Covid-19. When Coronavirus spread to China, then Italy, then Europe, and finally the United States, markets lived through days of terror.
The panic that swept the stock exchanges also did not leave cryptocurrencies untouched. Suffice it to say that on March 14, 2020, Bitcoin lost 20% in just 24 hours.
Back then, investors liquidated everything to profit whenever possible and get balance portfolios. Cryptocurrencies and stock markets showed an unusual but somewhat obvious correlation.
Quantitative easing policies
The global economy came to a screeching halt due to blockades and border closures. This blockade prompted central banks to intervene by printing money, or buying government bonds.
In particular, the Fed’s policies in the United States, which printed trillions of dollars to counter the stagnation of the American economy, resulted in a widely heralded consequence. Increased inflation.
In this scenario, it is no coincidence that cryptocurrency purchases and trading have increased. Bitcoin, like gold, is seen as a hedge against inflation. For these reasons, the price of BTC alone in 2021 reached its highest point, first at $66,000 in April and then at $69,000 in November.
How the global economy influences cryptocurrencies: specific cases
So, does the global economy influence cryptocurrencies? Yes, and very much. The opposite is also true: cryptocurrencies, Bitcoin in the lead, can also influence global markets.
When Tesla invested $1.5 billion in Bitcoin last February, the economic world widened its eyes, definitely noting that Bitcoin is not the currency of the dark web, but an investment tool in its own right.
Tesla does not go unnoticed: it is the automaker of the richest man in the world, Elon Musk. And even their tweets really rocked the (cryptocurrency) market and determined Bitcoin and Dogecoin bombs and dumps.
Just as an application was enough to rewrite the rules of the financial market
Robinhood was how a large group of retail investors banded together against hedge funds, buying up GameStop’s hitherto crisis-hit shares in droves. They also did it for Dogecoin, producing a result: meme stocks were born on the stock exchanges and thousands of meme coins were born in the cryptocurrency industry.
The regulatory factor
In any case, it is not just economic scenarios that influence the fate of cryptocurrencies, but also the behavior of regulators. When China banned Bitcoin last May, the industry took a slump and then rebounded.
Now the eyes are on the United States. The regulation of cryptocurrencies has been discussed for some time, but there is still little concrete. When a serious regulation arrives, which does not limit itself to looking at cryptocurrency only as an asset to be taxed, the sector will be able to choose between growing or sinking. The rest could probably be done by the European Union, which is also in the window.
Stablecoins are likely to be the cryptocurrencies that risk the biggest setbacks. The attention on their reserves is at the highest levels, and it is not excluded to impose on the companies that issue them to transform themselves into real banks.
It is widely recognized, however, that regulation can only do the industry good, preventing cryptocurrency projects from ending up in court, as happened with Ripple.
We just have to wait and see if 2022 can be the turning point in this regard.