Impact of US Dollar Appreciation on Cryptocurrency Market: Evidence from Time Series Model

Abstract

Since March 16, 2022, when the first federal funds rate hike was announced, federal funds rate has been raised from 0.25% to a level between 0.25% and 0.5%. Until July 27, 2022, the Fed has raised federal funds rate four times, bringing the benchmark of federal funds rate from 0.25% to a range of 2.25% to 2.5%. Against the backdrop of a downward spiral in the US economy and increased inflationary pressure, monetary policy in the US is gradually tightening. This paper selects two typical cryptocurrencies, Bitcoin and Ethereum, and uses time-series model to analyze the impact of US dollar appreciation on cryptocurrency market under the background of Fed rate hike, to fill the research gap and make suggestions for investors and policymakers. This paper concludes that US dollar appreciation would not affect Bitcoin market significantly but would negatively affect Ethereum market. Investors are supposed to be more alert to the risks of cryptocurrency market and reduce the holdings of Ethereum when US dollar index increases. For policymakers, they are suggested to increase regulation of cryptocurrency markets and prevent some malicious speculators’ attacks on the unmatured market from happening.