🔗 How the Fed affects cryptocurrency rates. Are decentralized finances really like this?
Today, the market reacted with a sharp decline and an equally sharp recovery $BTC . At least this happened after the publication of U.S. macro data and the Fed meeting. Just think about how states influence the market; the isolated world from traditional finance is becoming increasingly dependent on them. Nevertheless, many do not understand how these factors are related.
I will try to explain quickly. The base rate of the Federal Reserve is the interest rate used by banks to provide short-term loans to each other. When the rate is low, banks find it easier to issue loans to the public, money effectively becomes cheaper and more accessible. The amount of money in the economy grows, which can lead to inflation. The process of lowering the rate is defined as an easing policy, while a high rate means less availability of money, loans become more expensive, the influx of new money slows down, and economic activity decreases. Such a policy aims to reduce the rate of inflation growth. The process of raising or high rates is defined as a tightening policy. The investment climate in trading markets, as well as in the real economy sector, tends to spend more and take greater risks under soft monetary policy, that is, low rates and cheap available money. Conversely, under tightening, when access to cheap money is restricted, trading markets and the real economy sector look for stable earning and saving options, rather than increasing spending during periods of tightening monetary policy and economic slowdown. Investors tend to look for safe options for their money to preserve their funds, that is, risk-free. When money is cheap on the markets and economic activity is rising, market participants tend to take on higher risks by investing in company stocks, goods, and other means, including cryptocurrency. The night correction confirms this, as weak hands exited trades, leaving the asset to those like us, New Year's discounts, gentlemen.
