Cryptocurrency Market

Similar to the stock market, the cryptocurrency market is also labelled as a “risk” asset. Whilst it is not entirely correlated with the stock market, it does hold some relationship as investors use the cryptocurrency market as an investment, inflation hedge or storage of wealth. Similar to the stock market, during a period of low interest rates and “easy money” policy, cryptocurrencies tend to perform well. The overall reason is consumers have access to cheap loans that are provided by the bank. The amount of money in circulation will increase as businesses and individual consumers will have access to more money at a discounted price, which benefits all risk assets, including cryptocurrencies. The opposite is also true, when a central bank pivots from a low interest rate environment to a rising interest rate environment, the cryptocurrency market may face a period of selling pressure. The market will re-adjust based on the money supply and the overall market conditions. 

The cryptocurrency market does have other fundamental factors in play which will impact price action on specific crypto projects. However, it is important to understand the macro-economic environment as all financial markets are related to some degree. Think of the financial market as millions of investors who move in and out of positions based on sentiment and psychology. Capital will flow in and out of certain areas based on economic conditions and policy set by the institutions. Understanding which direction the policy is heading will give you an edge over other investors and ensure you are positioned with a fundamental backing.