How does the size of the Federal Reserve balance sheet affect the value of cryptocurrencies?

1 answers

• Mohamed KuijpersJul 06, 2020 · 5 years ago
  The size of the Federal Reserve balance sheet is a key factor that can influence the value of cryptocurrencies. When the Federal Reserve expands its balance sheet, it injects more money into the economy, which can lead to inflation. Inflation erodes the value of traditional fiat currencies and can drive investors towards cryptocurrencies as a hedge against inflation. This increased demand for cryptocurrencies can drive up their value. Conversely, if the Federal Reserve contracts its balance sheet, it reduces the money supply, which can lead to deflationary pressures. Deflation can decrease the value of cryptocurrencies as investors may prefer to hold onto cash instead. Therefore, changes in the size of the Federal Reserve balance sheet can have a significant impact on the value of cryptocurrencies.
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