Digital currencies are greatly affected by global economic events, just like traditional financial markets, but with differences related to the nature and characteristics of the cryptocurrency market. Here are the main ways in which they are impacted:
Central Bank Decisions (e.g., the U.S. Federal Reserve)
When the Federal Reserve raises interest rates, investors tend to pull their money out of high-risk assets (like Bitcoin) in favor of the dollar or bonds.
The opposite is true: lowering interest rates or implementing quantitative easing policies encourages investors to turn to digital currencies as a hedge against inflation.
Inflation and Commodity Prices
Rising inflation drives some investors to seek digital currencies (especially Bitcoin) as a "store of value" or a safe haven.
If inflation is driven by rising energy prices (such as during wars or crises), prices may fall because mining cryptocurrencies becomes more expensive.
Geopolitical Crises and Wars
Wars and crises (like the Ukraine war) push some to use digital currencies to move money away from the traditional banking system.
However, they also lead to sharp volatility due to uncertainty and fear in the markets.
Global Recession or Economic Slowdown
During recessions, spending and investment generally decrease, leading to reduced demand for digital currencies.
Some investors sell off cryptocurrencies to provide liquidity.
Government Regulations and Legislation
New regulations (such as bans on mining or imposing taxes on trading) can significantly affect prices.
Conversely, legal recognition or incorporating digital currencies into the official financial system (as El Salvador did) is a strong support for the market.
Global Stock Market Conditions
There is an increasing correlation between Bitcoin and stock indices like Nasdaq and S&P 500, meaning the performance of digital currencies is influenced by the general mood of the market.
Strength of the U.S. Dollar
There is often an inverse relationship between the strength of the dollar and Bitcoin’s price: a stronger dollar puts pressure on Bitcoin and vice versa.
Would you like me to provide a recent example of a global event that affected the cryptocurrency market?
🔶 7. China Announces Ban on Mining – 2021
Event: In mid-2021, China decided to impose a complete ban on Bitcoin and cryptocurrency mining within its borders.
Impact:
A significant drop in global Bitcoin mining rates, which affected the Bitcoin network itself.
A temporary decrease in Bitcoin prices due to fears of the global impact of the ban.
In contrast, many miners relocated to other countries such as Kazakhstan and the United States.
However, prices rebounded after a period due to the redistribution of computational power worldwide and increased mining in new regions.
🔶 8. Approval of Bitcoin ETF – October 2021
Event: The first Bitcoin Exchange-Traded Fund (ETF) was approved in the United States (ProShares Bitcoin Strategy ETF).
Impact:
Bitcoin prices surged significantly to record levels.
The event showcased increased acceptance of cryptocurrencies by major financial institutions and traditional investors.
This served as proof of market maturity and reflected the readiness of major institutions to invest in digital assets.
🔶 9. Financial Stimulus Due to the COVID-19 Pandemic – 2020
Event: Massive financial stimulus measures taken by governments worldwide to combat the effects of the COVID-19 pandemic.
Impact:
The massive liquidity injection led to inflation in many countries, prompting many investors to seek alternatives such as Bitcoin.
A notable increase in Bitcoin prices during 2020 due to these policies, rising from around $10,000 to over $60,000 in 2021.
This event earned Bitcoin a reputation as a hedge against inflation.
🔶 10. Emergence of Central Bank Digital Currencies (CBDCs)
Event: Several major countries, such as China and the European Union, began developing Central Bank Digital Currencies (CBDCs).
Impact:
Although CBDCs differ from decentralized cryptocurrencies like Bitcoin, their emergence impacts the market as they could raise awareness of the technology.
On the other hand, CBDCs raise concerns about government surveillance of financial transactions.
This may lead to stricter regulations on decentralized cryptocurrencies, potentially affecting their value and user rights.
🔶 11. Rise of DeFi (Decentralized Finance)
Event: In recent years, we have witnessed a boom in the decentralized finance (DeFi) sector.
Impact:
DeFi has enhanced the use of cryptocurrencies to provide financial services without the need for traditional banks.
As reliance on DeFi protocols grows, cryptocurrencies are becoming more accepted as part of the global financial system.
However, at the same time, some DeFi platforms have been targeted by cyberattacks or fraudulent activities, affecting investor confidence and leading to price fluctuations.
🔶 12. US Cryptocurrency Tax Law – 2021
Event: In 2021, the US government imposed new tax regulations on cryptocurrencies, including requiring trading platforms to report transactions.
Impact:
Increased transparency in transactions had a positive impact on boosting trust in the cryptocurrency market.
This led to a temporary market downturn due to concerns over the impact of taxes on the freedom of cryptocurrency transactions.
🔶 13. El Salvador Approves Bitcoin as Legal Tender – September 2021
Event: El Salvador became the first country to recognize Bitcoin as legal tender, making it a global media focal point.
Impact:
Increased demand for Bitcoin following the announcement.
Accelerated adoption of Bitcoin in some other countries.
In contrast, there were some criticisms of the project due to the high volatility of Bitcoin prices.
🔶 14. Increased Environmental Awareness and Its Impact on Cryptocurrency Mining
Event: In recent years, concerns have grown about the environmental impact of cryptocurrency mining, especially given the large energy consumption involved in mining operations.
Impact:
There has been increasing pressure from governments and environmental organizations to impose restrictions on mining, which has led to price fluctuations for some cryptocurrencies.
In contrast, some major mining companies have begun shifting to renewable energy sources, which enhances the future of digital currencies.
🔶 15. U.S. Presidential Election – 2020
Event: The U.S. election that brought President Joe Biden to power, with promises to expand financial stimulus and relief programs.
Impact:
Initially, a positive impact on digital currencies, with prices rising due to financial stimulus policies and quantitative easing programs.
Digital currencies seemed to receive support within an economic environment marked by increasing public debt and fiscal deficits.
Expectations arose that Bitcoin could become a hedge against loose fiscal policies, boosting its value.
🔶 16. U.S. Decision on Digital Currencies and Their Use in Payments – 2021
Event: The U.S. government announced its intention to regulate digital currencies more strictly, with developments in the use of digital currencies for daily transactions.
Impact:
Increased pressure on digital currencies due to concerns over strict regulations that could limit their usage freedom.
At the same time, digital currencies became more accepted in the formal financial system, with some U.S. companies adopting them as a payment method.
Regulatory challenges led to market volatility, as news about digital currency regulations significantly impacted markets.
🔶 17. Brexit – 2016 (and Its Aftereffects in 2020)
Event: The United Kingdom’s exit from the European Union (Brexit).
Impact:
Although not directly linked to digital currencies, Brexit created economic uncertainty in global financial markets.
Digital currencies like Bitcoin tended to rise during such times of instability, as some viewed them as a hedge against economic fluctuations.
🔶 18. Collapse of "Luna" and "Terra" – 2022
Event: The collapse of the stablecoin "Terra" and the bankruptcy of the "Luna" platform in May 2022.
Impact:
This event in mid-2022 caused severe volatility in the digital currency market.
It had a major impact on confidence in stablecoins like Terra and exposed investors to high risks.
The digital currency market saw significant price declines due to fears of further project collapses, leading many investors to withdraw.
However, it ultimately helped raise awareness about informed investing and thorough research before investing in digital currencies.
🔶 19. Economic Sanctions on Russia – 2022
Event: Western sanctions imposed on Russia following its invasion of Ukraine.
Impact:
Increased demand for Bitcoin and other digital currencies by Russians looking to protect their funds from the impact of sanctions.
Some digital currencies, like Bitcoin and USDT, saw significant rises in usage as people in Russia adapted to a tightened economic environment by using cryptocurrencies as an alternative to the traditional financial system.
On the other hand, sanctions increased the focus on the use of digital currencies in alternative financial systems.
🔶 20. Rising Energy Prices and Resources – 2022
Event: In 2022, the rise in energy prices (due to the war in Ukraine and global inflation) directly impacted the digital currency market, as mining some cryptocurrencies, like Bitcoin, requires significant energy consumption.
Impact:
Although Bitcoin prices initially rose as investors sought a "safe haven," the cost of Bitcoin mining significantly increased.
This caused mining regions like China and Kazakhstan to face challenges related to high energy costs, impacting mining profitability.
Ultimately, some large mining companies were forced to reassess their strategies.
🔶 21. Increased Focus on Environmental Projects – 2021–2022
Event: Growing interest in environmental sustainability issues from governments and major corporations.
Impact:
Traditional cryptocurrency mining (which relies on fossil fuels) faced criticism for its negative environmental impact.
Despite criticism, many eco-friendly projects emerged, aiming to reduce energy consumption in mining, such as using wind and solar energy.
This led to volatility in the value of sustainability-related digital currencies, like Ethereum, which transitioned to a Proof of Stake mechanism to reduce its environmental impact.
🔶 22. "National Digital Currency" Strategy – Arab Countries
Event: Arab countries began exploring and testing the possibility of launching national digital currencies (e.g., UAE and Saudi Arabia).
Impact:
As these initiatives grow, national digital currencies are expected to impact the global market, aiding in the increased regulation and legalization of the digital currency market.
At the same time, this could create competition between national digital currencies and decentralized cryptocurrencies like Bitcoin, altering market dynamics.
🔶 23. The Future of Digital Currencies Post-2025
Event: As 2025 approaches, major governments began to establish comprehensive regulatory frameworks for digital currencies.
Expected Impact:
If digital currencies are more heavily regulated, we may see increased market volatility, as governments will seek greater control over digital currencies.
Institutional acceptance of cryptocurrencies as legitimate investment tools is expected to increase.
🔶 24. Increased Use of Digital Currencies in the Black Economy – 2021–2022
Event: The illegal use of digital currencies in money laundering and illicit financing activities has evolved.
Impact:
Digital currencies became more focused on as anonymous tools in tax evasion and money laundering.
This led to increased concerns among governments about regulating and establishing clear laws to supervise digital currency usage.
In turn, the prices of certain cryptocurrencies rose due to the increased demand from unofficial parties.
🔶 25. Rising Interest in Blockchain Technology – 2021
Event: In 2021, many major companies began announcing large investments in blockchain technology, either through transitioning to decentralized systems or supporting related projects.
Impact:
Increased investment in blockchain strengthened digital currency-based technologies.
With this interest, cryptocurrencies like Ethereum, which relies on blockchain technology to create smart contracts and decentralized applications (dApps), saw a rise in value.
The demand for cryptocurrencies supporting blockchain made the market more diversified.
🔶 26. Economic Problems in Turkey – 2021
Event: The Turkish lira crisis, with an unprecedented drop in the local currency in 2021.
Impact:
Many Turks turned to digital currencies as a hedge against the devaluation of the lira.
The increased use of Bitcoin, Ethereum, and decentralized systems in Turkey helped support digital currencies, serving as a safe haven for investors amidst the severe fluctuations in the lira.
Later, government attempts to counter this trend led to regulatory challenges that might raise concerns in the digital currency market.
🔶 27. Announcement of Dollarization in Some Countries – 2022
Event: Dollarization (the use of the U.S. dollar as an official or semi-official currency) in countries like Venezuela and Zimbabwe due to hyperinflation of the local currency.
Impact:
Bitcoin became one of the alternatives that attracted attention in these countries.
Increased demand for cryptocurrencies as a solution to bypass government restrictions, allowing citizens in these countries to store their wealth away from the collapsing local currencies.
This had a positive effect on the prices of certain cryptocurrencies, particularly in countries suffering from ongoing inflation.
🔶 28. Economic Shifts in India – 2021–2022
Event: India, one of the largest digital currency markets in the world, saw significant changes in the government's stance toward digital currencies.
Impact:
Initially, there were concerns about a ban on digital currencies in India, leading to a temporary decline in digital currency prices.
However, later, the government took a more flexible approach to regulating digital currencies rather than banning them outright.
These shifts led to market stability in India, positively impacting the demand for cryptocurrencies.
🔶 29. Developments in Technology Markets (Investment in Web3) – 2021–2022
Event: The development of Web3 technologies using blockchain, with the rise of decentralization.
Impact:
These technological developments were crucial in increasing the adoption of digital currencies as a core tool in this technological revolution.
Decentralization provided users with control over their data and digital assets, leading to increased investor confidence in digital currencies.
Large investments from venture capital firms helped increase the market capitalization of digital currencies.
🔶 30. Increased Use of Digital Currencies in Video Games (GameFi) – 2021–2022
Event: The emergence of blockchain-based video games (GameFi) that allow players to earn digital currencies through gameplay.
Impact:
This led to increased demand for cryptocurrencies that support these games.
The rise of games like Axie Infinity and Decentraland resulted in more use of cryptocurrencies in entertainment activities, attracting a new audience of investors and users.
🔶 31. Announcement of Major Companies Like Tesla Investing in Bitcoin – 2021
Event: Tesla, led by Elon Musk, announced an investment of $1.5 billion in Bitcoin.
Impact:
This announcement sparked a major surge in Bitcoin prices, as many investors turned to digital currencies as part of their financial strategies.
Tesla later announced it would accept Bitcoin as a payment method, further strengthening institutional acceptance of digital currencies.
🔶 32. Launch of Government-Specific Digital Currencies – 2023
Event: A new development in the launch of government-backed digital currencies such as the Chinese digital yuan and the Saudi digital rial.
Impact:
These currencies show that governments are starting to see digital currencies as a tool for developing the financial system.
Although they do not carry the same decentralized characteristics as traditional digital currencies like Bitcoin, they contribute to greater interaction with digital assets, thus supporting innovation in this sector.
Additionally, they may increase the regulation of transactions between governments and digital currencies, potentially enhancing stability in the market.
33. Emerging Economies and Their Impact on Digital Currencies
Event: Increased use of digital currencies in emerging economies like Nigeria and Colombia due to economic challenges like inflation and restrictions on money transfers.
Impact:
This put increased pressure on local currencies, pushing many people in these countries to use digital currencies as a means of transferring money and storing wealth.
Bitcoin and other cryptocurrencies saw increased demand, as they became safer and less prone to local fluctuations.