Cryptocurrency has now become an important part of the financial system. There are millions of people around the world who actively trade cryptocurrencies on multiple exchanges.
This digital currency is nothing like the traditional one as it is highly volatile. There are many macroeconomic factors that could directly impact the prices of different crypto tokens. Sometimes even the news that's harmful for one token could be a good one for the other one.
This article is all about learning what these factors are and how they impact the overall cryptocurrency prices.
6 Macroeconomic Factors Affecting Cryptocurrency Prices
The top six macroeconomic factors that affect the prices of cryptocurrencies include:
Interest Rates
The interest rates set by the Central Banks play a major role in affecting the cryptocurrency prices. When the interest rate is low, people are more confident in investing in cryptocurrency. The main reason is that the traditional bonds and savings accounts offer far less than what a person can make with a crypto token. This is good for the market as the demand for cryptocurrency increases which pushes the price up.
However, the opposite scenario is also true. When the interest rates are higher, investors go for safer options and take their money out of this digital currency. This shows the inverse relation between these two things. It's also important to only buy crypto from a safe and reliable platform. You can use a cryptocurrency payment gateway that has a positive reputation. This way your funds will remain safe. This payment gateway offers over 70 cryptocurrencies so you can buy whichever you want in just one click.
Inflation
Another critical factor is the Inflation. When inflation increases the buying power of traditional currencies of many investors also decreases. During this time these wealthy people are looking to preserve their money. So, they move towards cryptocurrencies and dump all their money there. Because of this during high inflation times, cryptocurrency becomes more attractive.
However, if the inflation is low, the demand for cryptocurrency will also decrease as people will then prefer to stick with the traditional currency. And when this happens, the demand for cryptocurrency also decreases.
Economic Growth
The overall economic growth also plays an important role in the prices of cryptocurrencies. When the economy is growing, people have more money at their disposal to invest. Because of this the demand for cryptocurrency increases, eventually driving up the prices.
On the other hand, when the economy isn't doing too good, people prefer to keep every penny in their pockets and save as much as they can. Because of this the prices drop as the demand for this digital currency decreases. This shows a direct relation between these two things.
Government Policies
The government policies and regulations directly affect the cryptocurrency market. If the policies are positive and supportive, the crypto market flourishes but if the polices are strict, it's less likely that people will try to invest in cryptocurrency at all.
For example, if a government announces favorable regulations and encourages everyone to invest in this currency, it's more likely that people will start investing in it which will eventually increase the prices of every token.
Global Events
Did you see what happened during the Pandemic? The cryptocurrency flourished and even the multiple war news couldn't stop its growth. During these times people prefer keeping their assets in a safe place like Bitcoin or any other crypto asset. Because of this the price of these digital tokens increase.
However, if the global conditions are favorable and there's no global event going on, people feel more confident in investing in traditional currencies and Gold. Due to this the overall value of crypto tokens falls down. If you are a smart trader, you can look at this as an opportunity to make profitable trades.
Supply and Demand
It is one of the most basic economic principles. It states that when the demand increases, the price of an asset also increases and vice versa. This is also true for the cryptocurrency market. When there's high demand because of the positive sentiment created by companies or a prominent personality, the prices surge dramatically.
On the other hand, when there's a negative sentiment going on in the market due to any unforeseen news, the demand decreases and so does the price of crypto assets. It's important for any trader to understand and implement this basic principle.
Summing Up
Macroeconomic factors have a significant impact on cryptocurrency prices as discussed above as well. As an investor you should understand all these factors as they will help you make informed decisions.
You should also keep an eye on technological advancements in the cryptocurrency space as it also influences the overall market prices. All in all, use the factors mentioned-above to safely navigate the crypto ecosystem.
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