Impact on Economy and Cryptocurrency

In April, U.S. President Donald Trump actively criticized the Federal Reserve (Fed). For instance, last Friday, he stated that Fed Chairman Jerome Powell was consistently late in reducing the base interest rate.

This week, Trump emphasized the need for an emergency rate cut to rescue the economy, which he later supported with fresh inflation data. It appears that the Fed is ready to intervene if the situation worsens.

What will happen to the global economy?

Not only Trump is calling for a reduction in the base interest rate to ease economic pressure. For example, on Monday, Bob Michael from J.P. Morgan Asset Management suggested that the Fed would certainly have to implement an unplanned rate cut, as waiting until the next FOMC meeting on May 7 might not be feasible.

According to him, the recent financial market collapse was one of the largest in U.S. history, making the risks of new economic problems even higher.

The reason for this is the high import tariffs introduced by President Trump. Initially, these tariffs were intended as a tool to pressure other countries into signing favorable trade deals, as clarified by a member of Trump’s administration.

The President of the Boston Federal Reserve Bank, Susan Collins, shared details about the Fed’s stance. She stated that the central bank is ready to support markets using all available tools but will do so only when necessary. This includes potential liquidity issues or market disorder.

However, Collins’ comments followed a significant market collapse last week, which raised questions about the health of the U.S. financial system. Consequently, the Fed’s response might not be as swift as needed.

Here is a quote from Cointelegraph regarding the situation:

“The Fed does not see liquidity problems. If the situation changes, policymakers will have tools to address issues related to market functioning or liquidity.”

Investors should consider Collins’ comments, as she is one of the twelve voting members of the Federal Open Market Committee (FOMC), which decides the fate of the base interest rate that market participants are currently counting on.

Meanwhile, the Fed’s tools capable of stimulating global liquidity and restarting the business cycle traditionally have a strong impact on the Bitcoin price and the cryptocurrency market as a whole.

This influence has been scientifically confirmed. For example, professors Jinshi Zhao and J. Miao from Kingston University in London published an article in 2024 concluding that “dollar liquidity has a significant impact on Bitcoin’s price.”

This relationship strengthened after the COVID-19 pandemic, when liquidity began to account for 65% of the necessary factors for changing the BTC price. Here is a quote from the study:

“After the pandemic, monetary liquidity became the key factor influencing Bitcoin’s price—outpacing even the fundamental indicators of the network itself.”

Macro analyst Lin Alden came to a similar conclusion. In her material from September 2024, she stated that Bitcoin serves as a “global liquidity barometer.” Specifically, it is influenced by the global money supply M2 along with broader monetary aggregates in key world economies.

Meanwhile, the readiness of the Fed to intervene and the SEC’s softer stance on cryptocurrency create conditions for stabilizing the industry. This will likely positively impact investor interest in digital assets in the near future.

What is happening with cryptocurrency regulation in the U.S.?

Major U.S. regulators are already changing the situation with digital assets in the country. For example, on Friday, April 11, the Securities and Exchange Commission (SEC) held its second of five roundtables dedicated to the cryptocurrency industry.

This event was titled “Between a Rock and a Hard Place: Adapting Regulation for Cryptocurrency Trading,” as reported by The Block. Participants included representatives from Unswap LabsFalconX, Coinbaseand the New York Stock Exchange.

Currently, the SEC is evaluating possible regulatory options for digital assets, which would significantly differ from the approach under Gary Gensler. This position is supported by acting SEC Chairman Mark Uyeda.

Here is his statement:

“While the Commission works on a long-term solution to these issues, temporary and conditional exemptions from regulatory requirements for registered and unregistered participants could stimulate innovation in blockchain technology in the U.S. in the short term.”

The SEC’s actions clearly show a difference in approach compared to the previous leadership under Gensler, who believed that most cryptocurrency activity falls under the SEC’s jurisdiction. This led to frequent lawsuits against blockchain companies by the Commission, sometimes resulting in their bankruptcy.

The readiness of the Fed to support markets and the SEC’s softer stance on cryptocurrency create conditions for stabilizing the industry. This will likely positively impact investor interest in digital assets in the near future.