This week, the price of the Euro fell to lows last witnessed twenty years ago. As the Euro is now valued 0.01 LESS than the US dollar, many are left wondering what this means for cryptocurrencies. Analysts are already predicting a bearish outcome for Bitcoin and an uptick in volatility for Euro-based stablecoins.
Euro Hits Parity With US Dollar
Launched on January 1, 1999, the Euro services 19 countries across the European Union. Initially introduced digitally, Euro notes and coins officially entered circulation in 2002, which was the last time that the EUR/USD matched each other in near value parity.
This year alone the Euro has lost 10% of its value against the US dollar, reaching the $1:€1 parity level on Tuesday, July 12. This decline is believed to be a result of the European Central Bank (ECB) trailing behind the Federal Reserve (Fed) in delaying the inevitable tightening of monetary policies in light of recession fears, rising inflation, and the looming threat of a full-blown energy crisis in the EU.
What This Means For Crypto
Market analysts remain convinced that further delays will result in a continued weakening of the Euro price against the US dollar. Unfortunately, Bitcoin is usually also negatively affected by this, as it has been negatively correlated with the dollar index for several years.
Bitcoin, now down 70% from highs seen in November 2021, is currently battling its sixth crash of this kind in its 13-year lifespan. The latest was seemingly in direct response to EUR/USD parity on Tuesday, which caused an immediate drop of 2.3% in Bitcoin’s trading price, and with Ethereum down 3.4%.
As witnessed in the past, when currency prices have entered a period of turbulence, market participants tend to favor the US dollar, believing it to be the more “risk-averse” option. This also drives investors to move funds away from “risky” assets such as cryptocurrencies and tech stocks, opting for government bonds and the U.S. dollar instead.
While Bitcoin and other cryptocurrencies are praised for being free from the effects of the stock and forex markets, the truth is that the crypto markets tend to trend in line with tech stocks and equity markets, while tracking inversely to the US dollar index.
In response to Euro-dollar parity, the market remains concerned about Euro-pegged stablecoins, believing that many investors will now view this as a risky asset and move their funds elsewhere. However, when put in perspective, the Euro-backed stablecoin market comprises only a small percentage of the US dollar-pegged stablecoin market, with valuations (at the time of writing) of roughly $440 million versus $151 billion. This share could decrease even further should sentiment continue to worsen.
Market Sentiment Remains Low
Some analysts are predicting further losses for the greater cryptocurrency markets, while others believe a recovery is imminent. With market prices at such lows and no end in sight for the current threats to global markets, crypto investors are advised to hold tight and ride out the bear market.
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