Cryptocurrency market has been stuck in a downward trend for a while due to macroeconomic developments. Looking at current developments, it seems unlikely that there will be an improvement in macroeconomic conditions in a short time. After the latest CPI data released, the US Federal Reserve will likely increase by 75 basis points. However, in addition to this development European Central Bank (ECB) may also be preparing for tough economic moves. The ECB’s hawkish stance could trigger a crash in the cryptocurrency market.
Despite growing concerns about global financial stability, the European Central Bank is determined to raise interest rates another 75 basis points. The next rate decision will be announced on October 27.
The hawkish stance of the European Central Bank is almost certain to affect the crypto market negatively.
Why Are Central Banks Influencing The Crypto Market?
Central banks are the institution responsible for protecting the economy from abnormal economic events such as inflation and recession. As you can follow from the news in the press, banks have been implementing the policy of quantitative tightening and interest rate hikes for a while. The latest Consumer Price Index data revealed worse-than-expected inflation levels. Bad data forces the Fed to take an even more hawkish stance to meet its target.
Both the Fed and the European Central Bank want to reduce inflation to 2%. The current inflation level in the Eurozone is 10%, while in the USA it is around 8.2%. According to lawmakers, the high inflation came as a result of the Covid pandemic, government spending during the pandemic, and the Russia-Ukraine war.
As Koinfinans.com, we have previously reported Fedwill raise interest rates by 75 basis points for the fifth consecutive year to catch up. Meanwhile, the European Central Bank seems to follow in the footsteps of the Fed.
The crypto market hopes that financial stability concerns may soften aggressive central banks. The World Bank claims that the global economy will face recession in 2023. Meanwhile, Tesla’s Elon Musk and Ark’s Cathie Wood are people who believe the economy will see deflation.
Major Crypto Crash Might Be On The Way
The negative impact on the market will definitely put a negative pressure on the crypto market. But Bank of America is among those who believe there will be a strong stock rally in early 2023. It’s also possible that the market is already priced in at a 75 basis point increase.
You can follow the current price action here.
Disclaimer: What is written here is not investment advice. Cryptocurrency investments are high-risk investments. Every investment decision is under the individual’s own responsibility. Finally, Koinfinans and the author of this content cannot be held responsible for personal investment decisions.