Affected by the FED's interest rate increases in 2022, the Bitcoin and cryptocurrency markets experienced large and sharp declines.
After the FED's tightening policy, inflation started to decline, and this appears to be a positive factor for BTC.
At this point, Chicago FED economists evaluated the relationship between the decrease in inflation and Bitcoin and cryptocurrencies in their September report published after their research.
According to Condesk, Chicago FED economists argued that after the interest rate increases implemented by the FED since March 2022, inflation started to decline towards 2 percent and created a positive basis for the economy.
Economists stated that inflation could fall to 2% without a recession and that with the expected decline, money inflows into risky assets such as cryptocurrencies may occur.
Falling inflation is also good for risky assets, including Bitcoin and cryptocurrencies, and could be a potential gold lock, economists said.
“The FED's tight monetary policy and interest rate increases will reduce inflation to the 2% target without a recession.
At this point, further tightening may not be necessary, and a recession-free decline in inflation could encourage investors to take risks in global financial markets.
This means a gold lock scenario for risk assets, including cryptocurrencies. (The combination of falling inflation and a relatively resilient economy is called the gold lock scenario, an ideal situation for taking risks in global financial markets.)
As a result, after falling inflation, investors turn to risky assets, especially crypto currencies may come to the fore.”
*Not investment advice.
