Before we dive in, let’s talk about what inflation is and why it’s important for the economy. Inflation happens when the price of goods and services goes up, usually because the government is printing more money or spending too much. In the U.S., inflation is usually seen as bad news because it weakens the value of the dollar. But, for cryptocurrencies like Cardano, it can have the opposite effect.
According to a recent analysis by DApp Analyst, when the value of the dollar starts to decline due to inflation, Cardano (ADA) could become more valuable in comparison. So, how does this work?
Understanding the macro economic landscape is the key to know when $ADA price will rise!
🧵Let’s dive into it in this thread.
We are going to cover a few economic data points.
🔹Inflation rate YOY
🔹Interest rates
🔹Bond yields
🔹Global liquidity
🔹Fed balance sheetI will…
— The DApp ₳nalyst (@TheDAppAnalyst) September 7, 2024
Historical data shows that when inflation rises, ADA’s value tends to increase against the U.S. dollar. Why? Because Cardano, like many other cryptocurrencies, is often seen as a hedge against inflation. Unlike the dollar, which can be printed in unlimited amounts, ADA has a fixed supply. This makes it more appealing when inflation kicks in because as the dollar loses value, ADA holds its ground or even gains.
Another major factor in this equation is interest rates. When interest rates are low, it becomes cheaper to borrow money, which is generally great for the stock market and even better for emerging markets like cryptocurrencies. And Cardano is no exception.
Past trends show that ADA’s value surged when interest rates were low because cheaper borrowing means more money flowing into assets like crypto. On the flip side, when interest rates rise, it can put downward pressure on Cardano’s price. But in the current climate, with inflation rising and the potential for lower interest rates on the horizon, this could be a boost for ADA.
Typically, when bond yields drop, emerging market assets like cryptocurrencies tend to rise. Why? Lower bond yields make traditional investments less attractive, pushing investors towards riskier, higher-reward assets like ADA.
So, as bond yields fall, as we’ve seen with the U.S. 1-year and 3-month bonds, ADA’s price could potentially climb higher. It’s a negative correlation, but one that could work in ADA’s favor if yields continue to decline.
Another key piece of the puzzle is global liquidity – the amount of cash circulating in the global economy. Central banks, like the Federal Reserve, often inject more liquidity into the market through money printing, which can be good news for Cardano.”
When the Fed expands its balance sheet by buying assets like U.S. treasuries, it’s signaling that there’s more money available to invest. And guess what? This extra liquidity usually finds its way into assets like ADA. In fact, the more the Fed pumps into the market, the higher ADA’s price could go, due to its fixed supply.
So, what does all this mean for Cardano (ADA)? The combination of rising inflation, potentially lower interest rates, declining bond yields, and increasing global liquidity all paint a bullish picture for ADA.
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Disclaimer: This article is for informational purposes only and does not constitute financial advice. Always do your own research before investing in any cryptocurrency.
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Disclaimer: This article is for informational purposes only and does not constitute financial advice. Always do your research before investing in any cryptocurrency.
