Crypto markets are not relegated to an isolated bubble. On the contrary, crypto valuations are strongly linked to macroeconomic data. That’s why it’s crucial for traders to keep up with the news that strongly influence the market at large. But where should you get your information from, and what’s important to know? HAL is here to guide you!
Crypto Is Not Alone
For a long time, the prevailing narrative around crypto (and bitcoin in particular) was that it operated in its own universe, impervious to global conventional market trends. This would make it a good candidate for protecting one’s funds against inflation, even as crypto appeared as a bubble with consistently rising prices.
While from 2010 until the Covid crash, BTC had been very much decoupled from traditional markets, this is no longer the case. The correlation between BTC and conventional stocks is now largely positive. This means BTC valuations move in the same direction as the global trading markets. For example, BTC’s correlation with the NASDAQ tech index has been as high as 80%-90% for most of 2022. If we look at the SPX index (tracking the performance of 500 large companies listed on U.S stock exchanges), the correlation is still at 70%-80%.
This could actually be a sign that the crypto market is maturing. As crypto investing is becoming increasingly institutionalised, and backed by bigger actors, investors are viewing it as another risky asset to add to their portfolio – rather than as a potential hedge against inflation, as BTC has remained extremely volatile (its price dropped by 86% in 2014, 84% in 2018, and 75% in 2022).
As crypto becomes a major investment vehicle, we may actually witness lower levels of volatility going forward, at least for historical cryptos like BTC and ETH. But as crypto becomes “just another” asset, it also finds itself influenced by larger market forces.
How Macroeconomics Affect Crypto
Macroeconomic data refers to large-scale factors, such as interest rates or national employment figures. Some of these global factors strongly influence crypto markets, and this is particularly obvious during periods of macroeconomic data releases. A U.S. Fed’s official speech on inflation figures can have more influence on BTC than a significant event on the blockchain itself.
The graph above tracks the correlation between BTC and SPX. The first period highlighted in the graph is the post release of July’s U.S Consumer Price Index (CPI) in August. Inflation figures were worse than what the market expected. As a result, SPX dropped by -10% and BTC by -15%. Similarly, the Covid shock led to a -35% contraction for SPX and -45% for BTC during the mid-March selloff.
Other macro factors that influence crypto prices are:
- Supply and demand, indicated by transaction volumes or liquidity crunches
- Investor sentiment, tracked by surveys or sentiment analysis on social media
- Macroeconomic conditions: is the GDP rising or falling?
- Monetary policy such as measures taken against inflation
- Geopolitics: border tensions and wars influence global markets
- Regulatory changes, like a new tariff for Chinese imports to the U.S.
However, some crypto-specific news still have a strong impact on the crypto markets, while leaving global markets mostly untouched. Luna’s collapse in May 2022 led to a significant drop in BTC’s price, but hardly made a dent in conventional stocks: -15.56% for BTC in May, while S&P 500 did +0.01% (source: investing.com). So make sure to follow crypto sources as well!
Very recently, the collapse of FTX shows a decrease of the correlation to real assets because the risk is contained to the cryptosphere (2nd period highlighted in the graph).
How Do I Keep Up?
For official data, stick to official sources:
- The U.S Bureau of Labor Statistics publishes the Consumer Price Index and Producer Price Indexes, your guide to U.S inflation on the supply and demand side
- The U.S Department of Labor shares regular news updates on employment and jobless claims
- The FED, the U.S’s central bank, also publishes a lot of content. Look particularly at interest rates announcement.
- For the European Union, the European Central Bank releases inflation data.
Conclusion: React Automatically To Market News With HAL
Keeping ahead of market news, both crypto-specific and macroeconomic sounds like a lot of work… and it is. Moreover, once news drop, you need to act appropriately, without falling prey to panic or excessive elation. What if an algorithm could follow news in real time and make decisions on your behalf? This is exactly what HAL strategies allow you to do. Moreover, HAL strategies are designed to benefit from the volatility born out of a news cycle.
Investing involves risk, including the possible loss of all the money you invest. In particular, crypto-assets are a highly volatile and speculative asset class. HAL is only suitable for traders who are willing to bear the risk of loss and experience sharp drawdowns. Past performance is not necessarily a guide to future performance. The performances presented are real performances calculated net of execution fees and slippage from a proprietary Binance account.
The purpose of this material is to provide objective, educational and interesting commentary and analysis on developments in the crypto-assets sector. Nothing in this material should be interpreted as constituting an offer of (or any solicitation in connection with) any investment products or services by any member of the CoinShares Group where it may be illegal to do so. Access to any investment products or services of the CoinShares Group is in all cases subject to the applicable laws and regulations relating thereto.