Lesson 4 of 6 · 8 min

Macro: interest rates, inflation and the dollar

Crypto-assets do not live outside the rest of the financial world. A large part of the capital in this market comes from investors who also choose between stocks, bonds and savings. That is why the macro environment, meaning the general state of the economy and of money, often affects how willing investors are to take on risk.

Interest rates

Central banks, such as the US Fed and the European Central Bank, influence the price of money. When rates are higher, safe savings and short-term bonds become more attractive, and borrowing becomes more expensive. Risky assets then often find it harder to attract money. When rates fall, the opposite holds. A historical example: in 2022 the Fed raised rates sharply and the crypto market fell hard. But Terra and FTX also collapsed that same year, so the fall cannot be attributed to a single cause.

Inflation

It is often claimed that Bitcoin is a hedge against inflation because its supply is limited. As an idea it makes sense, but over the short term it is not reliable. Higher inflation can lead central banks to raise rates, and that can hurt risky assets. This is why the release of higher inflation figures sometimes brings a fall, not a rise. There is no constant relationship, so pay attention to what the market expects: the price often reacts to the difference between the published figure and expectations, not to the figure itself.

The dollar and your euro

Most crypto markets are quoted in dollars or in stablecoins pegged to the dollar. A strong dollar often goes together with tighter financial conditions, although that relationship is not constant either. For you there is also a direct effect on an account held in euros.

What to do on the day of a major release

• Put inflation releases (CPI in the US and HICP in the euro area), Fed and ECB meetings and US employment data in your calendar.
• Decide in advance: do you reduce positions before the release, widen the gap between your stops and the price, or simply not open new orders for a short period around the release?
• Allow for possible slippage: a stop order in a fast market can be filled worse than the set price.
• Do not try to guess the direction. Even a correct estimate of the figure does not guarantee the correct direction of the reaction.