Macro & Bitcoin: The Crypto Report That You HAVE To SEE!

What causes the crypto Market to pump or Dump in short it's crypto-specific Factors like Tesla buying Bitcoin or Macro factors like the Federal Reserve Raising interest rates sometimes it's a Combination of both now the effect of Crypto-specific factors on crypto prices Are often straightforward however the Same can't be said for macro factors Sometimes they don't move the crypto Markets at all Researchers at s p Global recently Released a report revealing exactly how And when macro factors move crypto Markets so today I'm going to tell you All about it The report I'll be summarizing today is Aptly titled quote are crypto markets Correlated with macroeconomic factors it Was published earlier this week and I'll Leave a link to the full report in the Description if you're interested Now the report begins with a brief Introduction wherein the authors explain That crypto is seen by most investors as A risk asset as such macro conditions That are favorable towards risk assets Such as low interest rates and low Borrowing costs tend to have a positive Impact on crypto prices amazingly the Authors acknowledge that this could Change over time cryptocurrencies like Bitcoin and ethereum could start to be Seen as more analogous to say

Commodities rather than risk assets the Authors note that the increased Involvement of both retail and Institutional investors could be the Cause the authors then explain that they Assessed how changes to macro factors Impacted the crypto Market between 2017 And March 2023 this is a fascinating Time frame to choose because it's Believed that institutional investors First started getting involved in the Crypto markets in late 2017 more about That in the description In any case the authors go on to break Down the five questions about crypto and Macro that they want to answer these are One does monetary policy matter to Crypto markets Two does the perception of the Possibility of an incoming recession Matter for crypto markets Three can crypto assets be a hedge Against inflation Four what does a strong or weak dollar Mean for the crypto markets And five do Financial stress and Market Volatility spill into the crypto Ecosystem I'll quickly note that the Wording of the second question is very Significant as some of you will know the Markets are forward-looking this means That today's prices reflect the Expectations of what's going to happen In the future as a fun fact it's

Believed that the crypto markets are the Most forward-looking of all Anyways the authors then of course start With the first question does monetary Policy matter to the crypto markets well The short answer is yes because lower Interest rates result in an increase in The money supply as measured by M2 and Crypto is highly sensitive to increases In M2 note that M2 has been falling on That note the recent decline in M2 Suggests that the crypto Market may not Be as sensitive to M2 as the authors Portray the crypto Market has been Rallying since the start of the Year This could mean that the crypto Market Is more correlated to the global money Supply which was increasing until Recently now the authors also ask a Handful of other questions related to The impact of monetary policy on the Crypto Market the first is if crypto Prices are correlated to Future changes In interest rates to answer this Question the authors compared the S P's Crypto index to the interest rates on Two-year U.S bonds as you can see the Crypto market and two-year yields have An inverse relationship meaning that When the two-year interest rate Increases the crypto Market Falls and When the two-year interest rate Decreases the crypto Market rallies note That two-year U.S bonds basically

Reflect two-year expectations for Interest rates The second sub question is if Quantitative easing and tightening Affect the crypto Market in other words Does the FED buying U.S government debt Easing or selling U.S government debt Tightening impact the crypto Market as You can see easing causes a rally and Tightening causes a crash This correlation is even clearer when You compare the crypto market with the Size of the fed's balance sheet as the Fed's balance sheet expands the crypto Market rallies and as the fed's balance Sheet contracts the crypto Market Crashes note that the fed's balance Sheet has been contracting recently now The third sub question is if M2 levels Impact the crypto market for anyone Wondering quote M2 is the U.S federal Reserve's estimate of total money supply Including all of the cash people have on Hand plus money deposited in checking Accounts savings accounts and other Short-term saving vehicles As you can see the money supply as Measured by M2 is positively correlated With the crypto Market however the Authors highlight the fact that the Crypto markets continued to crash in 2018 despite the increase in the money Supply This underscores the idea that there's

More to the story than M2 the authors Then rightfully conclude that quote in General crypto markets have performed Well in periods of expansionary monetary Policies although we are not able to Establish a causal relationship They note that crypto-specific factors Like FTX collapsing can be more Important than the M2 money supply This begs the question of whether we Could see a similar phenomenon occur During this bear Market put simply could The crypto Market continue to crash due To a crypto-specific factor even though The M2 money supply is increasing I Suppose this all depends on whether Crypto is actually in a bear Market you Can find out why crypto could be in a Bull market using the link in the Description Anyhow you'll hopefully recall that the Second question was whether the Perception keyword of a possible Incoming recession matters for crypto The authors give the answer straight Away recessionary risks could weigh on The crypto markets assuming they're Large enough to affect risk asset Allocations what's interesting is that The authors use the difference in Interest rates between three month Yields and 10-year yields to assess Recession risks this is interesting Because most people watch the difference

Between the two-year and 10-year yields One of the only exceptions is fed Chairman Jerome Powell the authors then Say that comparing the three month to The 10-year is more accurate interesting Indeed now as most of you will know if Shorter term interest rates are higher Than longer term interest rates then This is a sign that a recession could be Coming the authors note that one of the Only times a yield curve inversion Didn't result in a recession was the Most recent inversion too soon to say I Reckon Regardless as you can see there seems to Be a positive correlation between a Yield curve inversion and the crypto Market the authors say that there isn't Enough historical data to say for sure But it appears that the crypto Market Declines both when the yield curve Inverts and then again when it starts to Revert This makes sense considering that a Reversion of the yield curve typically Happens when the FED starts lowering Interest rates in response to a Financial crisis of some kind Contrary to popular belief the markets Crash when the FED pivots because the Latter is usually done in response to The Market's braking Incredibly the authors then acknowledge That crypto could be seen as a safe

Haven in the event of such a crisis and Note that people in countries with Weaker currencies have been adopting Crypto they even admit that it's being Used as legal tender in some countries And could play the role of money based That said it's more than likely that Crypto continues to be seen as a risk Asset by most investors not as a safe Haven As the authors point out however this Could change over time and I have a Feeling it will change after central Banks start holding crypto on their Balance sheets in January 2025 more About that in the description Anywho this ties nicely into the third Question and that's whether crypto can Be a hedge against inflation The authors start by saying that there Have been periods where crypto's price Action was inconsistent with macro Factors they stop short of saying that This is why people should invest in it What's strange is that the authors Define inflation as an increase in Demand via the money supply or a Shortage of actual goods and services on The supply side as Milton Friedman Famously said quote inflation is always And everywhere a monetary phenomenon I.E It's caused by the demand aspect this is Important to point out because crypto Clearly isn't a good hedge against

Inflation caused by a shortage of supply Of actual goods and services However crypto clearly is a good hedge Against inflation caused by the demand Side an increase in the supply of money Chasing the same Goods Not surprisingly the authors found that The crypto Market isn't correlated to Their broad definition of inflation Which they measured using two-year and 10-year inflation expectations also not Surprisingly they found that gold prices Are correlated to inflation expectations Gold goes up as expectations increase to Their credit the authors acknowledge That crypto is an effective inflation Hedge in many developing economies oddly Enough they say that crypto is used by Some countries to evade sanctions and That this quote complicates the study of Crypto as a counter-inflationary asset This makes no sense case in point gold Is also reportedly used to evade Sanctions and yet it's a perfect Inflation hedge Logically the demand for both gold and BTC should rise during inflationary Periods by countries using them to evade Sanctions because they would Theoretically be the strongest Currencies besides the USD to be clear I'm not advocating for sanctions of Agents here just correcting the record Stating the facts if you will and this

Relates to another acknowledgment by the Authors and that's that the supply of Cryptocurrencies also impacts their Ability to be inflation Hedges they note That the supply of BTC will continue to Increase until 2140 whereas eth has Occasionally been deflationary and could Continue to be speaking of which if You're wondering what happens to bitcoin When the last BTC is mined be sure to Check out our video about that using the Link in the description Now the fourth question is the most Interesting one in my opinion at least And that's whether US dollar strength or Weakness impacts the crypto Market the Authors start by saying that crypto Prices generally decline when the US Dollar is strong the same is true of Most other assets not just risk assets Rather than measure dollar strength Using the dxy the authors use the Nominal broad US dollar Index which Quote tracks the currency against a Weighted basket of currencies used by U.S trade Partners they reason that Investors should favor other currencies When the US dollar Falls including Crypto As you can see the stats suggest that Crypto prices tend to increase when the US dollar declines however the authors Highlight the fact that there can be Lags between these effects this again

Underscores the fact that Crypto-specific factors can sometimes Take precedence over this macro Factor The authors argued that there's no Causal relationship between a decline in The USD and an increase in crypto prices But I reckon there is you see the USD And other currencies are ultimately just Assets at the end of the day they Experience volatility like all other Assets they're just much less volatile So when you do see volatility among Currencies chances are it's because There's flight to safety among investors Everyone moving out of other assets and Into Cash obviously the inverse is true If the US dollar is declining then it Generally means that money is moving out Of the USD and into other assets The reason why the causal relationship Isn't apparent to the authors is Probably because of the perception Aspect of investing recall that markets Are always pricing in what's going to Happen next this means that crypto can Sometimes rally next to the USD the Crypto Market thinks the USD will fall The evidence for this can be seen in the Author's own statistics notice that the Crypto Market has collapsed every time There was an unexpected rally in the USD Like at the start of the pandemic the Crypto Market also rallied every time There was an unexpected collapse in the

USD like earlier this year in case it Wasn't clear enough expected rallies in The USD are caused by crises of some Kind not only that but the USD initially Continues to Rally even when the FED Starts cutting interest rates and Engaging in quantitative easing it's Only after investors have calmed down That risk assets start to recover and Rally so the next time you see the USD Go on an unexpected rally remember that This could crash the crypto market for a Few months also remember that the fed's Emergency measures won't cause a rally Until investors have started to calm Down not Financial advice but stay calm If you catch my drift Now the fifth question pertains very Much to the previous one and that's Whether General market volatility can Spill over into the crypto Market the Authors start by stating the obvious and That's that yes the General market Affects the crypto Market they measure This using a financial stress index as You can see when the financial stress Index turns positive I.E lots of Financial stress then the crypto Market Crashes conversely when the financial Stress index turns negative the crypto Market starts to Rally the correlation Here is truly striking dare I say it's The best I've seen that predicts crypto Cycles

The authors also examined the Correlation between the vix which tracks Stock market volatility the vix for oil And crypto market prices Here we see a similarly striking Correlation where volatility in stocks Or oil result in a crypto crash the Authors chose the oil vix because of Bitcoin mining's energy use smart What's not so smart is that the authors Claim that stress in the crypto Ecosystem can spill over into the Banking sector they make this claim Because crypto exposed Banks don't have Control over the crypto Market this Makes no sense and it's clear that the Exact opposite is true banking can hurt Crypto To add insult to injury the authors even Admit that the banking crisis caused the Usdc stablecoin to D Peg they also note That this caused chaos in crypto's defy Ecosystem and warned that this chaos Could have spread to the rest of crypto If it wasn't contained more about usdc's De-pegging in the description now there Are two things to keep in mind here the First is that indicators like the Financial stress index the stock market Vix and the oil vix are all Fundamentally analyzing the same thing From a slightly different angle that's Why it's best to use multiple indicators To make sure you get the full picture

The second thing to keep in mind is that Most stable coins in circulation are Backed by U.S government debt AKA U.S Bonds the U.S Bond Market has a Volatility index of its own called the Move the move index exploded when usdc Depict this wasn't the cause but it's an Important correlation so the next time You see the move index explode don't be Surprised if you see stablecoins depeg The move index could rally because U.S Bonds are considered a safe asset and Investors are buying them with Increasing speed the move index could Also rally if U.S bonds suddenly become Less safe due to say a debt ceiling Debate Speculation aside the authors conclude That crypto will become ever more Affected by macro factors as it becomes More common among investors they also Caution that crypto could affect other Markets if institutions get too involved A notable change from their otherwise Pro-crypto commentary Now to wrap things up I want to give you My take on why macro factors can have a Hit or miss effect on the crypto Market In short it's because the crypto Industry is still evolving investors are Still trying to assess whether cryptos Are risk assets or something else for Now they continue to be risk assets this Makes sense considering that the

Implicit and explicit purpose of Cryptocurrency is to replace the Existing Financial system this is a Massive undertaking and as time goes on It's becoming clear that some cryptos Want to integrate with the existing System and other cryptos have Non-financial use cases this makes it Even harder to tell whether cryptos are Risk assets or something else and it Foreshadows a decoupling among major Crypto categories Some cryptos like BTC and eth will be Considered low-risk Commodities others Will be considered high-risk Securities And that are just to stocks in companies It's unclear when this decoupling will Take place but I presume that a Prerequisite is reasonable crypto Regulations around the world crypto Regulations will allow for the kind of Price Discovery that's required for Investors to understand which cryptos Fall into which categories and this Process will take time from where I'm Standing it looks like this process will Begin during the next crypto bull market If most countries have passed reasonable Crypto regulations by then given that Reasonable crypto regulations are Probably a prerequisite for a new crypto Bull market it's safe to assume they Would have passed what this means is That the next crypto bear Market could

Look completely different we could see Cryptos like BCC in beneath keep most of Their bull market gains while more Speculative altcoins get absolutely Wrecked some would say that we're Starting to see this in the current Crypto bear Market in some then crypto Is about to enter a very interesting Period of price discovery which will Likely go in both directions if you Manage to keep track of how different Cryptos are responding to different Crypto and macro factors you will be Perfectly positioned for a once in a Millennium investment opportunity now This is much easier said than done but It is doable and it all starts with Understanding which crypto categories to Watch during the next crypto bull run as It so happens we just did a video about That very topic and you can find it Using the link in the description you Are welcome And that's it for today's video if you Found it as thought provoking as I did Give that like button a poke while You're at it press that subscribe button And punch that notification Bell to make Sure you don't miss any videos from the Coin Bureau If you happen to be looking for a Hardware wallet to store your crypto or Want to save on trading fees you can Check out the coin Bureau deals page for

Massive discounts on Hardware wallets And huge discounts and incentives on the Top crypto exchanges the link will be Down in the description thank you all For watching and I will see you next Time till then stay cool stay safe and Stay crypto [Music]


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