During an economic summit in September, Jerome Powell, Federal Reserve Chairman, announced an increase in interest rates. Following the announcement, cryptocurrency values came crashing down. This prompted a reaction by the United Nations, which urged major regulators in the west, as well as the US central bank, to not raise interest rates.
Federal Reserve Raises Interest Rates To Tackle Inflation
The US Federal Reserve and major international banks raised interest rates with the purpose of controlling steady inflation. However, according to the United Nations Conference on Trade and Development, the move could have catastrophic implications. They warn that it could trigger a global economic crisis. Many analysts seem to agree, explaining that continuing to increase interest rates could push the global economy to the brink of a recession.
UNCTAD Releases 2022 Report, Predicts Global Recession
On Monday, the UNCTAD released its 2022 report, which raised concern over the Federal Reserve’s stringent monetary policy. The report highlighted the possibility of a global economic collapse and that developing nations would be terribly affected. The UN agency stated that raising interest rates to bring down prices without causing a recession is a huge gamble.
The market had an immediate negative reaction towards Powell’s claim that the reserve can only combat rising inflation by continuing to raise interest rates. Over the past few months, prices of major cryptocurrencies like Bitcoin and Ethereum are becoming increasingly connected to the stock market. Consequently, Powell’s statement led to a major impact on the overall crypto market,
UNCTAD secretary-general, Rebeca Grynspan, explained that the Federal Reserve’s current policies could be especially harmful for people in developing countries. Bitfinex, a crypto exchange, also issued a statement, saying that the crypto market is highly sensitive to announcements by the Federal Reserve and that the latest interest hikes have left a lasting impact.
How a Recession Would Affect Crypto
As crypto investors worry over price fluctuations, there are various predictions on how a recession would affect digital assets. The consensus is that cryptocurrency values will take a nosedive if the stock market crashes, but there are counterarguments. The opposing viewpoint is that a recession, which can take place as early as next year, would do the crypto sector some good.
As central banks and governments raise interest rates, people could soon lose faith in these institutions. It will prompt more people to adopt cryptocurrencies due to their decentralized nature. Market watchers expect that Bitcoin will diverge from the market and experience a price increase. Currently, Bitcoin is valued at $19,603, which is a 3 percent increase over the last week.
Other analysts say that if Bitcoin sees a bullish rally, other major currencies like Ether could experience the same. For now, the market is waiting for the Federal Reserve to make its next move after their upcoming meeting on November 4.