European Central Bank Becomes More Hawkish, Will Crypto Crash

The crypto market is displaying bearish sentiments due to unfavorable market conditions. However, it does not appear that the macroeconomic outlook will get better anytime soon. The US Federal Reserve will almost certainly raise the interest rates again. Now, according to Reuters, the European Central Bank will follow a very similar path. The hawkish stance can result in a crypto crash.

Despite the growing concerns about global financial stability, the European Central Bank will raise interest rates by another 75 bps. The decision on the next hike will be taken on the 27th of October.

The European Central Bank’s hawkish commitment will negatively affect the crypto market.

How The Central Banks Impact Crypto Market

The central banks are responsible for protecting the economy from abnormal economic phenomena such as inflation and recession. The banks engage in quantitative tightening and interest rate hikes. The latest Consumer Price Index highlighted worse-than-expected inflation levels. The bad data make the Fed even more hawkish to achieve its target.

Both the Fed and the European Central Bank want to bring the inflation level down to 2%. The current inflation level in the Euro Zone is 10% while in the US, it is at 8.2%. According to lawmakers, the high inflation is a result of the Covid pandemic, government spending during the pandemic, and the Russia-Ukraine war.

To achieve just that, the Fed will increase its interest rates by 75 bps for the fifth consecutive time. Meanwhile, ECB will also follow in the Fed’s footsteps.

The crypto market is hoping that the concerns about financial stability can temper the aggressive central banks. The World Bank claims that the global economy will face a recession in 2023. Meanwhile, Elon Musk of Tesla and Cathie Wood of Ark believes that the economy will see deflation.

Will Crypto Crash

The negative impact of the market will definitely put negative pressure on the market. However, Bank of America believes that a strong equity rally will happen in early 2023. It is also likely that the market will already price in a 75 bps hike.