How could currency turmoil impact cryptocurrency markets, according to analysts?

Currency Turmoil: Will It Rock Cryptocurrency Markets?

As the Japanese yen plunged to its weakest point against the US dollar in 34 years, analysts are closely monitoring the potential implications for cryptocurrency markets, renowned for their volatility. While cryptocurrencies remained relatively stable on Friday, experts warn that currency fluctuations could have significant repercussions in the near future.

Intervention on the Horizon?

Quinn Thompson, founder of Lekker Capital, believes that continued yen devaluation may prompt intervention from authorities. If the BOJ (Bank of Japan) intervenes by selling US dollar assets to support the yen, it could weaken the greenback, potentially boosting cryptocurrency prices.

Impact on Cryptocurrencies

Noelle Acheson, analyst and author, suggests that BOJ intervention could positively impact cryptocurrencies. However, she also foresees the possibility of other central banks intervening to support their currencies, potentially leading to a broader sell-off of US treasuries. This could further weaken the dollar, adding to inflationary pressures and potentially driving investors towards safe havens like gold and Bitcoin.

Currency Contagion

Acheson anticipates that the currency turmoil may extend beyond the yen, as rising US inflation strains other currencies. This could lead to a collective sell-off of US treasuries to support local currencies, amplifying inflationary pressures globally.

Central Bank Responses

Thompson indicates that US policymakers could also intervene by injecting liquidity into markets, providing support for risk assets including cryptocurrencies. However, it’s crucial to note that the specific impact on cryptocurrencies will depend on the nature and timing of any intervention.

Investor Cautions

Analysts advise investors to proceed with caution and monitor developments closely. The highly interconnected global financial landscape means that currency fluctuations can have wide-ranging implications, and cryptocurrencies may not be immune to such influences.