How do macroeconomic events impact Bitcoin?
Bitcoin’s price is linked directly to supply and demand, and events that impact the economy on a national and global level impact people’s need to buy or own (hodl) the cryptocurrency. When the economy is in a funk investors tend to avoid volatile assets and store their money in reasonably safe investments, be it in a currency such as the US dollar or an asset like gold. Macroeconomic events can be any event at national and global levels that impact the economy, including natural events such as the pandemic, geopolitical events such as political instability, and unemployment rates. These events are usually interwoven.
Interest rate hikes tend to play puppet master with the price of Bitcoin. When interest rates are low and it’s cheap to borrow money, investors tend to pour money into high-risk investments, including Bitcoin. Conversely, investors move their money out of risky investments following an interest rate hike.
But the macroeconomic drivers that adversely affect the global economy can lead to the devaluation of fiat currencies and put the focus on Bitcoin as a viable alternative currency.
In other countries where inflation has wrecked the purchasing power of a local currency, governments have looked to Bitcoin as an alternative to their current malaise. El Salvador’s adoption of Bitcoin is a case in point, and it’s been the catalyst for other Latin American countries to follow suit.