As the world has become intrinsically connected and any influential change has the power to reshape numerous aspects and industries, the crypto market is an important pioneer in this scenario, showing a deep reflection of the state of global politics and vice versa. Events in politics are one of the main drivers of cryptocurrencies’ fluctuation, erasing any sense of “economic stability” established by international relations, investor confidence, media coverage, and regulatory decisions.
Cryptocurrencies exist at the intersection of money, power, and influence. However, political events and interest rate decisions don’t fail to directly influence Bitcoin, Ethereum, and the overall crypto ecosystem. While everyone probably knows cryptocurrencies are designed to be independent of government control, political decisions’ power to reshape their accessibility, adoption, and valuation might raise inquiries among beginner investors who are still trying to figure out how this ecosystem works.
Elections And Crypto Markets – Trump’s Victory, Bitcoin’s Surge
Digital assets respond dramatically to political narratives and any potential policy shifts, with elections becoming pivotal moments of volatility and opportunities in the crypto landscape. This dynamic is perfectly explained through the 2024 US presidential election cycle, which was full of candidates’ proposed cryptocurrency regulations that immediately triggered multiple market responses, with Bitcoin and Ethereum as principal examples of how the perception of regulatory friendliness leads to substantial price fluctuations.
For example, during his campaign, Donald Trump has actively branded himself as a pro-crypto candidate, making bold statements about how he aspires to include Bitcoin, Ethereum, XRP, Solana, and Cardano in his strategic reserve to make the US “the Crypto Capital of the World.” Unlike the previous US president, Joe Biden, who instilled a crackdown on crypto through his constant concerns about fraud and money laundering, Trump’s vision has led to a sudden rise in the first three coins he mentioned by up to 62%.
Furthermore, the market’s heightened sensitivity to potential regulatory shifts has started to interpret any political communication as a means of interpreting financial updates. This interrelationship became so strong that Donald Trump’s win in the race signified Bitcoin’s breaking record of $90,000. And the hype kept going, as approximately one month later, Bitcoin skyrocketed to $100,000 for the first time.
Political Events And Crypto Markets
Ongoing conflicts and international sanctions shape cryptocurrency markets in significant ways, holding a paramount responsibility in crypto’s highly volatile nature. A notable example would be the rage felt by inhabitants of South Korea at the moment of hearing the president’s decision to send heavily armed forces into the streets of Seoul, reminiscing about past moments when the country was under dictatorial leadership. Within hours, many users based in South Korea started selling their crypto assets, leading to notable price declines in the crypto market. However, this event has surprisingly had a reverse effect on TRON, a very popular cryptocurrency in South Korea. TRON consequently experienced a price jump of 80% within only 24 hours.
This previously mentioned happening in South Korea illustrates a prevalent truth: cryptocurrencies transcend their innovative technological nature, becoming a financial instrument that actively responds to geopolitical dynamics. In a world where global tensions ebb and flow, market trends and investors are prime targets, having no choice but to grasp this dynamic to navigate the market’s volatility. The most significant geopolitical triggers include conflicts, trade tensions, and major policy shifts.
How Are Interest Rate Decisions Influencing The Crypto Market?
The intricate dynamics of the cryptocurrency market show that interest rate decisions have also emerged as a potential driver, being intrinsically connected to the complex ecosystem of global finance. Bitcoin, Ethereum, and the broader crypto ecosystem are directly influenced by central bank policies, such as The US Federal Reserve’s monetary policy, which has a large and persistent impact on the crypto factor. Here’s how:
- Risk Assets and Liquidity: If the Fed decides to cut rates, for example, there will be major liquidity increases in the financial system, encouraging investors to take on more risk with the hope of higher returns. During the COVID-19 pandemic, when the Fed cut rates to near 0, investors approached riskier investments with courage, driving Bitcoin from about $7,000 at the beginning of 2020 to over $60,000 by the end of the year.
- Institutional Investment in Crypto: Under fortunate circumstances of more liquidity available in the market, institutional investors are generally willing to allocate substantial capital to speculative investments such as cryptocurrencies. When an influx of capital occurs, prices increase, and a bullish trend in the market is created. During the 2020 bull run, Bitcoin saw growing institutional confidence, with large corporations like Tesla and MicroStrategy making significant purchases.
- Correlation with Stock Markets: As crypto is intrinsically connected with financial markets, a pattern of correlation is now implied. Cheap credit, increased liquidity, and a “risk-on” sentiment are the most common factors that drive stock market rallies during periods of low interest and simultaneously in the crypto market. For instance, Bitcoin’s status has heavily reflected that of the stock market, with a heightened focus on teach-heavy indices like the Nasdaq.
- Inflationary Concerns and Bitcoin as a Barricade: One of the most notable narratives that surrounds Bitcoin emphasizes its role as a barricade against inflation. When liquidity increases, and people must contend with mounting inflationary pressures, Bitcoin appears as a very attractive alternative for investors who seek a store of value. Furthermore, this idea has appealed to several companies and even sovereign nations, with El Salvador as the most notable example. In 2021, El Salvador made global headlines, becoming the first country to adopt Bitcoin as a valid currency, making it a key component of their overall economic strategy.
Concluding Thoughts
Political events and interest rate decisions are a leading voice shaping the discourse in the crypto industry. They demonstrate the crypto market’s sensitivity to global dynamics and reshape how investors perceive and approach digital assets. However, it remains of paramount importance for you to do your due diligence to make the best possible judgment, as what happened in the past cannot guarantee the performance of the future.
Founder Dinis Guarda
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