The bear market we are currently experiencing has not only affected the cryptocurrency ecosystem, and we are seeing a unique side effect of the impending fear the overall community interested in finances has regarding an upcoming recession.
Euro is currently being used in 19 countries, and it has been a strong alternative to the US Dollar, relatively keeping its value, especially in the last couple of years, when bull markets had the overall economy of the world soar and thrive.
This is now changing abruptly, as the turmoil caused by several factors, be it the pandemic, the Russia/Ukraine conflict or the overall crypto crash, bringing down with it the stocks markets, have caused whales and experienced forex traders to move their assets to a currency of lower risk, this being the US Dollar, and liquidating high-risk assets such as crypto and tech-related stocks.
All of this also affects crypto, as it injects volatility to Euro-pegged stable coins and this diminishes the trust of regular investors in the blockchain ecosystem and Bitcoin itself.
Interest rates are rising much faster in the United States and that attracts capital to that territory. For investors, yields on U.S. Treasury bonds are higher than those on Europe, which makes them prefer the dollar to the euro.
The euro's 1:1 parity with the dollar comes at a time when the European Union (EU) is suffering harsh economic consequences due to the war between Russia and Ukraine. This in turn has generated a lot of uncertainty about the sustainability of Russian gas supplies, as Russia, the EU's main energy provider, seems to be planning to retaliate sanctions from western sanctions by cutting off gas flows from the country.
There are some benefits to this parity, at least for Americans or people keeping their savings in US Dollars: a stronger currency somewhat provides relief from the inflation the world economy has been experiencing since the start of this year, this being caused by the vast quantity of goods being imported into the US from foreign nations with weaker currencies.
The FED has been raising interest rates a lot more aggressively than the central banks from other regions outside of the USA, this is done in retaliation to one of the highest inflation rates the country has experienced in the last four decades.
Investors seeking higher yields on their fundings also contribute to the price of the dollar as a currency staying more stable than euros throughout 2022. This increased interest in dollar-denominated assets is another factor in the strength of the USD as of late.
At the time of this article being written, all eyes are on the price of the Euro, seeing if it ends up going from parity with the US dollar to even below its price, as the last time this happened was back in November of 2002, not very long after the currency was introduced in 1999.
That said, the current economic scenario favors bitcoin (BTC) in the long term.
Michael Saylor, an American entrepreneur, and business executive, has shared his opinion recently regarding the volatility of markets and the future of Bitcoin:
“In the near term, the market will be dominated by those with less appreciation of the virtues of bitcoin. Over the long term, the maximalists will be proven correct, because billions of people need this solution, and awareness is spreading to millions more each month.”
For crypto investors and coin holders, it has certainly been harsh for the first half of 2022, it would be a matter of time to see how the market evolves and if cryptocurrencies end up benefitting from the volatility of fiat currency amidst staggering inflation and international sanctions.
Isaac Vitales