Five ETFs with exposure to Ethereum
IntoTheBlock analyzes how monetary policy and macroeconomic decisions affect cryptoasset price performance and stablecoins.
The beginning of 2023 saw a significant increase in the value of cryptocurrencies across the market. Bitcoin is up 39% so far in January, which would make it the biggest monthly gain since October 2021. Many attribute this recent price rise to the liquidity influx recently experienced in the US markets. Crypto sectors such as stablecoins have begun to reflect similar positive trends in their total supply. This article seeks to analyze the recent increase in liquidity and its correlation with cryptoasset price performance and increase in stablecoin supply.
After moving in different directions during the FTX collapse, crypto and stocks have once again started to move in a similar pattern. Currently, the correlation between Nasdaq and Bitcoin is very strong as indicated by their correlation coefficient of 0.93, which suggests a strong positive statistical pattern between the two.
This general market increase is directly correlated with the recent reduction in Reverse Repo and the US Treasury General Account balance. As inflation begins to ease, markets have generally climbed in anticipation of a possible change in Federal Reserve policy. Although the Federal Reserve has yet to officially announce any plans to loosen economic conditions, investors can expect such a move, as they have observed that increased money supply leads to an increase in the value of financial assets in the past.
The relationship between the Fed’s actions on liquidity and market movements can be directly correlated. Bitcoin even sometimes behaves as an indicator of changes in liquidity. This pattern is noticeable during May and November 2021, which proved to be local peaks under the Fed’s positive guidance.
During 2020 and 2021, the Federal Reserve engaged in quantitative easing (QE) that led to a significant expansion of its balance sheet and supported markets, including the cryptocurrency market. In 2022, the Federal Reserve engaged in quantitative easing (QT) which involved the reduction of $458 billion worth of assets from its balance sheet. This led to a decrease in the overall liquidity available in the markets, which caused prices to fall. This change in attitude has been felt directly several times in crypto asset behavior, most recently the increase in liquidity can be felt through different sectors.
The increased liquidity in the market has started to affect the availability of stablecoins in the ecosystem. This growth represents a positive sign for the entire crypto ecosystem.
The growth of stablecoin supply can be beneficial to the crypto ecosystem in a few ways: it can increase liquidity, make trading more accessible, promote greater adoption, improve market stability, and increase the efficiency of the ecosystem in general. This recent increase in the market value of stablecoins can be directly related to the increased liquidity in the market. Quantitative easing can have a positive effect on risky assets such as stocks, high-yield bonds and other assets such as cryptocurrencies that are more sensitive to these changes in monetary policy. Furthermore, the recent actions are directly felt in the increased liquidity in the markets which is reflected in the growth of stablecoins.
The relevance of monetary policy and macroeconomic decisions has continued to play an important role in cryptoasset price developments. Jerome Powell aims to continue taking the necessary measures to bring inflation under control. These monetary policy actions affect the crypto and capital markets through their impact on liquidity. Moreover, the effects of stablecoin supply growth can be beneficial to the crypto ecosystem by increasing liquidity, making trading more accessible, increasing adoption, and improving market stability.
This is a guest post from CoinMarketCap by Pedro Negron of IntoTheBlock and has been edited for style. The original article was published here.
What is CoinMarketCap:
CoinMarketCap is the world’s most referenced price tracking website for digital assets in the rapidly growing cryptocurrency space. Its mission is to make crypto discoverable and effective globally by empowering retail users with unbiased, high-quality and accurate information to draw their own informed conclusions.
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What is IntoTheBlock:
IntoTheBlock is blockchain and cryptocurrency market analysis, insights and trading signals. The company uses data science to apply cutting-edge research in AI to deliver actionable intelligence for the crypto market. IntoTheBlock also uses machine learning and statistical modeling to deliver actionable intelligence for cryptoassets.
Where to find IntoTheBlock:
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