This year has been awfully eventful for bitcoin and the entire crypto market which has maintained a steep fall since topping out in November 2021. Aside from the bearish technical market outlook; global economic macros — particularly the continuous Fed rate hike have contributed heavily to the direction of the market, thanks to rising inflation and unemployment rate.
The Fed's primary instrument for managing inflation is its ability to influence interest rates. Based on what it sees in the economy, the Fed can hike or drop its benchmark rate, known as the federal funds rate. The federal funds rate affects how much banks and other financial entities pay to borrow, which in turn affects businesses and individuals.
Taking the 2022 scenario as a whole, there has been a run in the rising consumer price index throughout the year, with the CPI for August now standing athigher than the previous year. In response to this series of events, the Fed has continued to raise rates in order to lower the purchasing power of institutions and individuals thereby attempting to strike a balance between supply and demand which will, in turn, have a ripple effect on the inflation rate.
Since the beginning of 2022, risky assets such as stocks and cryptocurrency have been strongly correlated. Both have been moving in tandem this year, with investors fleeing in reaction to increasing interest rates, growing inflation, and the. If the stock market falls as a result of another rate rise, the crypto market would most certainly fall as well – and vice versa.
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