The Euro has reached parity with the U.S. dollar for the first time in 20 years.
What Happened: Following macroeconomic fears of an impending recession, the Euro is now equal to the U.S. dollar.
There is an array of implications this event has for the crypto sector. Having depreciated 10% against the U.S. dollar, the Euro’s fall can be attributed to the European Central Bank (ECB) not undertaking quantitative tightening under global hyper-inflation, contrary to the U.S. Federal Reserve.
Why It's Important: The past year has seen a large growth in the volume traded and the number of stablecoins across the sector. The purchase of stablecoins exposes investors to the risk of fluctuating exchange rates. Thus, the purchase of Euro-pegged stablecoins, such as EURt EURT/USD, in current market climates may be deemed a risky investment. Prior Euro-pegged stablecoin holders may look to liquidate their holdings, causing the volume and frequency of these stablecoins to suffer.
Following the infamous black swan event of UST’s de-peg, there is extreme market uncertainty surrounding stablecoins. Thus, exchange rate risks double down on market FUD towards stablecoins.
The depreciating rate of the Euro also poses risk to the crypto market overall. The destabilizing of a major currency such as the Euro is indicative of macroeconomic uncertainty.
In turbulent global market conditions, investors move away from risk-on assets such as Bitcoin BTC/USD and other cryptocurrencies and move towards safer risk-averse assets, like government bonds. Therefore, as the dollar index grows higher and technology stocks continue to fall with no imminent bottom, the short-term price action for Bitcoin remains uncertain.
© 2022 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.
Visit Benzinga's Crypto Homepage - 1,000,000+ depend on Benzinga Crypto every month