Bitcoin — The state of the economy may have a huge influence on the cryptocurrency market.
Investors may turn to alternative assets such as cryptocurrency to diversify their portfolios and hedge against inflation during times of economic instability.
As a result, demand for cryptocurrencies may rise, potentially driving up prices.
When the economy is doing well, investors may be more confident in traditional assets such as equities and bonds, which might lead to a drop in demand for cryptocurrencies.
Furthermore, during a booming economy, central banks may boost interest rates to combat inflation, which can have a negative influence on the crypto market since investors may transfer their emphasis to high-yield savings accounts and other income-bearing assets.
Government regulation is another aspect that may have an impact on the crypto market.
If governments put limits or outright prohibitions on cryptocurrencies, their value and adoption rates may suffer.
Governments, on the other hand, may increase the value and legitimacy of cryptocurrencies by enacting more favorable regulatory regimes.
Overall, the economic environment and government actions have a substantial impact on the performance of the cryptocurrency market.
The Bitcoin situation
The start of inflation in 2022 severely shook the economic landscape.
Similarly, the crypto market was impacted, although various causes contributed to a large price collapse for several cryptocurrencies.
The market languished throughout 2022, but early 2023 witnessed hints of a recovery, with numerous crypto assets making a comeback.
However, the honeymoon phase may be gone, since Bitcoin has started declining.
According to CoinGecko, the crypto asset has dropped by more than 9% in the last week.
Bitcoin is currently worth $27,414.88.
The BTC drop has almost completely wiped the crypto asset’s early April gains above $30,000.
Instead, it has dropped to roughly $28,500, much below the closing price in March.
The downturn
While Bitcoin’s value has dropped, it is not alone.
Other popular cryptocurrencies have also fallen in value during the last week.
Except for stablecoins, the majority of the top 10 most famous cryptocurrencies by market cap have fallen by double digits.
The strengthening of the US currency is one of the causes of the slump.
The Federal Reserve of the United States is projected to boost the benchmark interest rate by another quarter basis point at its next policy rate meeting in May.
With a higher-yielding dollar on the horizon, non-yielding assets such as gold and cryptocurrencies may become less appealing to investors.
Bitcoin has a greater link with gold than traditional stock market indexes, according to Valkyrie Fund.
Read also: Looking to Start Trading? PointPay is Your All-In-One Cryptocurrency Banking Platform
The debt ceiling crisis
The debt limit problem is another element influencing Bitcoin prices and the greater American economy.
The United States Treasury is in historic debt.
The present debt exceeds the $31.4 trillion debt ceiling, and loans totaling more than $31.46 trillion have already been made.
The US debt ceiling functions similarly to a credit card limit established by Congress for the US government.
If the government has to spend more than the cap, it must petition Congress to raise it.
Just as people must appropriately manage their credit card debt to minimize financial pressure, the US government must balance its expenditure and debt to avoid loan defaults and harming the economy.
However, in recent years, the problem of extending the debt ceiling has become a political battleground, with partisan differences and delays producing uncertainty and volatility in financial markets.
