How the global economy governs cryptocurrency prices

Cryptocurrencies have become part of the global economic system. While in 2017 the total market capitalization of cryptocurrencies was only a few dozen billion dollars, as of August 2025, this figure exceeds $3.7 trillion, and Bitcoin is now listed among the world's leading assets alongside shares of major tech giants.

This means that institutional investors have now entered the crypto market, and therefore, digital assets are influenced by the same factors as the stock market and other major financial sectors.

Rising inflation and money supply expansion

Crypto analysts position Bitcoin as a hedge against inflation. To some extent, this is true, since Bitcoin's limited supply creates scarcity in the market, driving up its price.

On the other hand, an increase in the money supply leads to currency devaluation. For instance, in 2020–2021, the U.S. Federal Reserve (Fed) launched a quantitative easing program to support the economy during the pandemic, "injecting" $120 million daily into the economy — money created out of thin air.

The Fed's monetary policy predictably led to rising inflation, and Bitcoin performed strongly during this period. By November 2021, Bitcoin had reached a new all-time high (ATH) of $69,000, growing by more than 850% since early 2020.

At the same time, in 2022, when U.S. inflation hit a 40-year high of 9.1%, Bitcoin's price dropped by over 60%, whereas gold fell by only 0.4%.

Matrixport's Chief Economist Alex Krüger explains this by stating that cryptocurrency ceased to be a "haven" for investors. For example, in 2022, Bitcoin's correlation with the Nasdaq exceeded 0.8. This indicates that Bitcoin began behaving more like a tech startup than a defensive asset, the expert noted.

Here's another example of the relationship between Bitcoin and inflation: according to Arcane Research, in 2020–2021, Bitcoin's correlation with the U.S. Consumer Price Index (CPI) was -0.3. This suggests an inverse relationship: Bitcoin rose amid accelerating inflation.

According to CoinShares' leading strategist Matthew Hayman, this occurs because cryptocurrencies are now included in institutional portfolios as an alternative asset class. As a result, crypto market dynamics depend more on market liquidity than on internal factors.

Interest rate hikes

Decisions by the U.S. Federal Reserve on interest rates also have a significant impact on global markets.

For example, in 2020–2021, the Fed's rate remained at 0–0.25%, which encouraged demand for high-yield assets, including cryptocurrencies. However, starting in March 2022, the Fed began aggressively tightening its policy: by July 2023, the rate had risen to 5.5% — the highest level since 2001.

As a result, from November 2021 to December 2022, the total crypto market capitalization plummeted more than 3.5 times, from $3 trillion to $0.8 trillion. Bitcoin's price over the same period dropped more than fourfold to $16,700, hitting a two-year low.

User activity in the decentralized finance (DeFi) market also sharply declined: according to DappRadar, the number of active wallets shrank by about 40%.

As DailyFX strategist James Stanley notes, every 1% rate hike in 2022–2023 was accompanied by a 15–20% drop in Bitcoin on average.

On the other hand, the crypto market often reacts to Fed rate cuts with growth. For example, in September 2024, when the Fed cut the key rate for the first time in four years to 4.75–5%, Bitcoin's price jumped over 21% by the end of the month — from $54,000 to $65,700.

Meanwhile, Bloomberg senior analyst Eric Balchunas notes that Bitcoin acts as a leading indicator, with the market anticipating rate cuts 6–9 months before the Fed's actual decisions. According to him, 70% of Bitcoin's growth in 2024–2025 is driven by expectations of a Fed easing cycle.

Geopolitical crises

Severe economic situations such as hyperinflation and sanctions force users to seek alternatives to restore access to essential financial services and to find a haven for their capital. This drives demand for digital assets.

For example, in countries experiencing hyperinflation like Venezuela and Nigeria, cryptocurrencies are strengthening their position as a store of value. Another case is the collapse of Silicon Valley Bank in March 2023. This incident triggered a short-term 20% surge in Bitcoin, as investors sought alternatives to the banking system.

In November 2024, one of the primary growth factors for the crypto market was the election of Donald Trump as the 47th President of the United States. He had pledged to make the U.S. the "crypto capital of the world." The event attracted a large number of investors to the crypto market, including institutional players. As a result, by the end of the year, Bitcoin's price exceeded $100,000. However, a week later, when the Fed launched the Bank Term Funding Program (BTFP), the crypto market returned to a downward trend.

Forecasts suggest that in 2025, BTC's price may reach $150,000 per coin. According to analysts, the main drivers of this growth — in addition to the 2024 halving — will be Fed rate cuts and the mass adoption of central bank digital currencies (CBDCs).