The Federal Open Market Committee is the primary policy-making body of the Federal Reserve System, the central bank of the United States. The FOMC is responsible for setting monetary policy, including the federal funds rate, and the interest rate at which banks lend and borrow money overnight.
Interest Rates and Their Effect on the Crypto Market
One of the primary ways the FOMC affects the cryptocurrency market is through its control of interest rates. When the FOMC raises interest rates, it can strengthen the US dollar, putting downward pressure on cryptocurrencies like ETH. On the other hand, when the FOMC lowers interest rates, the US dollar tends to weaken, leading to a boost in crypto prices.
For example, in the first quarter of 2021, the FOMC kept interest rates low, and as a result, the value of ETH skyrocketed from $730 to $2,040, a growth of 178%. This shows how a change in interest rates can significantly impact the crypto market.
The State of the Global Economy
Another factor to consider is the state of the global economy. The FOMC monitors inflation and employment indicators. If the economy is strong, the FOMC may raise interest rates, which could negatively affect the crypto market. However, if the economy is weak, the FOMC may lower interest rates, boosting the crypto market.
For example, in 2020, the COVID-19 pandemic caused a global economic slowdown, and the FOMC responded by lowering interest rates to support the economy. As a result, the value of ETH increased by over 400% from $130 to $640 in just one year.
The FOMC’s Accommodative Stance
In recent years, the FOMC has taken a more accommodative approach to monetary policy, which has been positive for the crypto market. In addition, the FOMC has implemented several unconventional measures, such as large-scale asset purchases, to support the economy during the pandemic. These measures have increased the money supply, which can drive up demand and prices for cryptocurrencies like ETH.
For example, the FOMC’s asset purchases increased the money supply by over $3 trillion in 2020 alone. This increase in money supply has been a key factor behind the crypto bull run, with the total market capitalization of all cryptocurrencies reaching a record high of over $2 trillion in 2021.
Despite the FOMC’s impact on the crypto market, it’s essential to keep in mind that the crypto market is still relatively new and volatile, and many factors can influence its direction. For example, regulatory developments, technological innovations, and investor sentiment can impact the crypto market, regardless of what the FOMC does.
In conclusion, the FOMC significantly impacts the cryptocurrency market, including Ethereum. You can stay informed and make informed investment decisions by keeping an eye on changes in interest rates, economic indicators, unconventional measures, regulatory developments, technological innovations, and investor sentiment. However, it’s essential to remember that the crypto market is still relatively new and volatile, and many factors can influence its direction, so it’s always a good idea to consult with a financial advisor before making any investment decisions.
Steve Anderson is an Australian crypto enthusiast. He is a specialist in management and trading for over 5 years. Steve has worked as a crypto trader, he loves learning about decentralisation, understanding the true potential of the blockchain.
Source: https://www.thecoinrepublic.com/2023/03/08/fomc-and-its-influence-on-ethereum-what-the-future-holds/