In terms of the economy, the Federal Reserve Board (Fed) of the United States is a major player . The economy and the cryptocurrency market are affected by the decisions you make about interest rates and other monetary policies . The Fed’s standard response to a recession is to lower interest rates which boosts economic activity by making borrowing and investment more attractive . However these programs often face obstacles due to the uncertainty of a recession’s start and longevity .
Inflation Has A Huge Effect On Cryptocurrencies, Too
Bitcoin, dubbed “digital gold” by some, has been seen as a possible insurance policy against the volatility of more conventional financial markets . This has made the potential effects of a downturn on the cryptocurrency market a hot subject of discussion .
The Great Recession shown that asset price declines are common during economic downturns . The crypto market being decentralized and not dependent on centralized banks may react differently during a financial crisis .
In times of economic uncertainty, cryptocurrency investments such as Bitcoin may be a safer bet than those in more conventional asset classes . When conventional markets are in turmoil, Bitcoin may be a desirable alternative store of wealth because to its decentralized, international and non-governmental character .
In times of market turmoil, having some Bitcoin in your portfolio may be a good idea because of Bitcoin’s negative correlation with more conventional markets . However it must be stressed that the question of whether or not cryptocurrencies qualify as safe havens is still being discussed among industry professionals .
For instance Bitcoin and other cryptocurrencies along with conventional markets, saw huge price declines during the early phases of the COVID-19 epidemic . This caused others to wonder whether or not cryptocurrency could be considered a safe investment at this time .
Stablecoins, too, Offer Protection Against Inflation
During a downturn, stablecoins or cryptocurrencies tied to conventional assets like the US dollar may also serve an important role . These digital assets are designed to maintain their value, making them a potentially alluring choice for investors concerned with capital preservation during economic uncertainty .
Stablecoins are digital currencies that are valued against a stable asset often the US dollar . As a result investors may avoid the risk associated with buying and holding conventional cryptocurrencies while still having access to the digital asset market thanks to stablecoins .
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