Which Macroeconomic Factors Make Crypto Rise or Fall? 

As much as crypto feels like it’s a world of its own, it’s still very much connected to the traditional financial system. Just like stocks or bonds, crypto gets hit by big macroeconomic forces, including inflation and interest rates.

So, if you've seen some news that BTC prices changed because of the U.S. Federal Reserve’s interest rate policy and didn’t quite understand what’s going on, we’ll break it down for you in this article.

What’s Macroeconomy?

Macroeconomy refers to the big-picture forces that shape the overall economy of a country or even the world. It’s all about the large-scale trends and policies that influence things like national growth, unemployment, inflation, and interest rates. Think of it as looking at the forest instead of the trees.

While microeconomics zooms in on individual decisions (like how consumers choose products or how a company sets prices), macroeconomics looks at how those individual actions add up to impact the economy on a much larger scale. 

Central bank decisions, monetary policies, political events, social movements, global crises, and elections largely shape macroeconomic trends. 

Alongside factors like technological developments in crypto and adoption rates, the macroeconomy plays a key role in driving change.

What Major Economic Trends Impact Crypto Prices?

If you’ve ever wondered why Bitcoin reacts to news about the Federal Reserve or why inflation makes crypto prices go crazy, you’re not alone. If you’re not much into economics, these terms may sound boring but they’re actually pretty simple and super important for crypto investors.

We’ll walk you through them one by one: 

Inflation

Inflation happens when prices for everyday items – like food, gas, or housing – start climbing, and your money buys less than it used to. One of the main causes of inflation is the simple act of printing more money.

When a government or central bank increases the money supply without a corresponding increase in goods and services, the value of money decreases. More money in circulation means more money chasing the same amount of goods, which drives prices up.

Inflation can also be triggered by external factors, like supply chain disruptions or global economic events. For example, if there’s a shortage of goods due to a natural disaster or geopolitical crisis, the reduced supply can drive prices higher.

Inflation is often linked to an overheated economy, usually caused by government policies or central bank actions. In times of inflation, investors may look at crypto because cryptocurrencies are decentralized and not controlled by governments. Bitcoin, for example, is scarce, with a limited supply of 21 million, which adds another point to its score.

Based on S&P Global research, in developing economies, crypto assets have sometimes been used as an alternative to domestic currency during periods of very high inflation, rapid currency depreciation, or strict capital controls.

Higher inflation can push crypto prices up due to increased demand.

However, this is a complex topic. Governments have tools to tackle economic challenges, which can sometimes make traditional investments more appealing and reduce interest in crypto. So, rising inflation doesn’t always lead to bullish trends for the market.

This brings us to the next macroeconomic factor.

Interest Rates 

Think of interest rates as the cost of borrowing money. Central banks often raise interest rates to fight inflation.

When interest rates go up, borrowing money becomes more expensive. This means people and businesses are less likely to take out loans and spend as much. When spending slows, demand for goods and services drops, which helps keep prices from rising too fast. Essentially, raising interest rates is a way to cool down the economy and get inflation under control.

So, what does this mean for crypto? 

Higher interest rates usually mean that conservative investors lean toward traditional financial products, like bonds or savings accounts, instead of riskier assets like Bitcoin and altcoins.

On the other hand, when rates are low, borrowing is cheaper, and investors are more willing to take risks. This often leads to more money flowing into crypto markets.

Interest rate changes depend on central banks, but long-term rate movements are often hard to predict.

Global Economic Events

Crypto doesn’t stay immune during a global crisis. Imagine there’s a geopolitical conflict or a global pandemic – traditional markets panic because of all the uncertainty.

In such cases, crypto can grow. Why? Because fiat currencies might lose value due to economic instability. In countries dealing with rapid currency depreciation, crypto often becomes a store of value and a hedge against inflation.

But it’s not always that simple. In severe crises, like wars or extreme financial stress, people might sell off their crypto, too. Why? Because they need cash to survive – whether it’s for food, housing, or other essentials. In these situations, the demand for crypto could actually drop.

So, the role of crypto during a crisis depends on how bad things are and how people view it as a solution at that time.

Government Policies and Regulations

Government decisions on crypto regulations have a direct impact on the market. If they announce a crackdown on crypto – like banning trading or mining – prices can tank almost overnight. It’s all about market confidence.

On the flip side, when governments take a positive stance on crypto, institutional adoption increases, and prices tend to grow.

Sometimes, governments don’t outright ban or promote crypto but introduce complex rules that make investors nervous. Regulations can create uncertainty, and markets don’t respond well to uncertainty.

For example, prices dropped when China announced a total crypto ban in 2021, but they surged when the U.S. approved spot Bitcoin ETFs. Bitcoin crossed $100,000 for the first time in December 2024 after Donald Trump won the election, promising a clear regulatory environment.

Wrapping It Up: How Crypto and Macroeconomics Are Connected 

Crypto and the macroeconomy are more connected than they might seem at first. From inflation to interest rates, global events, and government policies, these big forces shape the ebb and flow of the crypto market.

The industry isn’t just reacting to these economic trends – it’s actually starting to change them. Crypto challenges traditional banking by offering decentralized alternatives for lending, borrowing, and payments.

It’s also disrupting things like international money transfers, making it cheaper and faster to send money across borders. As crypto grows, it creates jobs and investment opportunities, which can even boost a country’s economy, like in El Salvador, which adopted Bitcoin as legal tender.

In countries with unstable currencies or high inflation, crypto provides a safer option, helping people reduce reliance on traditional systems.

Keeping an eye on these macro trends isn’t just for economists – it’s for anyone who wants to understand the bigger picture and make smarter moves in the crypto world. Whether markets are booming or facing uncertainty, knowing what’s driving the action can help you stay ahead.