The impact of global economic dynamics on Bitcoin is evident if we evaluate the history of crypto markets. The rise of inflation since the pandemic contributed to the bullish market that started in late 2020, and continued until mid 2022. The launch of spot ETFs also boosted the coin in the early months of 2024, attracting a large chunk of institutional investments. In our current economic landscape, we have central banks struggling to control inflation. We also have big changes incoming in the energy markets. With the rise of renewable alternatives and growing environmental awareness. Investors who want to maximize their profit must keep all these factors under their radar, especially in today’s volatile markets. In the case of Bitcoin, it is even more volatile than traditional assets, even if its volatility rates have waned over time. The US Dollar is currently the main currency in global markets, even if we acknowledge the strength of other currencies. Plenty of markets revolve around it, and bitcoin is often valued in relation to the dollar. Any factor that influences the BTC to USD exchange rate will also have an impact on other markets. Bitcoin itself is a key driver for the rest of the crypto market, so these two assets have the power to shape global financial landscapes. Let’s evaluate what are the major factors that influence this exchange rate, and the market as a whole. A major part of Bitcoin’s appeal is its deflationary model. This is in stark contrast to fiat currencies, that are by design inflationary. However, financial authorities can’t always control currencies’ inflation. The Covid-19 pandemic caused governments to increase public spending, and it resulted in higher inflation rates. This issue continues to this day, and it’s responsible for rate cuts as well. Although its price dropped shortly after the lockdown was announced, as the economy became stagnant, Bitcoin went up. Investors and customers adopted the cryptocurrency as a hedge against inflation. Bitcoin continued rising as fiat currencies lost purchasing power. An article published in 2022 focused on the relationship between BTC, economic policy uncertainty (EPU), and consumer price index (CPI) in the US. It showed that CPI alterations, that reflect inflation, has a positive effect on Bitcoin. EPU, which reflects unstable markets, has a negative influence. As we mentioned, central banks have been making adjustments to interest rates to try to control inflation. And we already know how this relates to Bitcoin. When central banks increase interest rates, money supply is lower, as fewer people take loans, since they’re more expensive. Conversely, lowering interest rates encourages people to take more loans and spend more. The recent rate cut in the US affected the stock and crypto markets, because it forecasts a stronger dollar. And it also signals a lower inflation rate. In fact, the president of the European Central Bank recently announced that high inflation is no longer a problem for Europe, since rates are coming close to 2%. This relation, however, is not so black and white. As lower interest rates incentivize spending and investing, it can positively impact the price of Bitcoin.Economic Trends Impacting BTC to USD Exchange Rates
1. Rising Inflation Worldwide
2. Central Bank Interest Rate Adjustments
3. Global Energy Market Fluctuations