What is the relationship between central banks and cryptocurrency?

Central banks and cryptocurrency have a complex relationship. Central banks, like the Federal Reserve, control money supply and interest rates for traditional economies. They view cryptocurrency with caution because it operates outside their control and can affect monetary policy. Most central banks don't directly use Bitcoin or Ethereum but are developing Central Bank Digital Currencies (CBDCs)—government-backed digital versions of regular money. Some countries restrict crypto trading to protect financial stability, while others explore blockchain technology. Bitcoin's price often moves inversely to rising interest rates, as investors seek alternatives when traditional savings offer lower returns. Regulatory actions by central banks significantly impact cryptocurrency markets, making their stance crucial for crypto investors.