CoinMarketCap Alexandria takes a look at the long-term effects of macroeconomic events on Bitcoin and how you can maximize your trading gains during this situation. Read more!
In the past few years, the macro-economic landscape has shifted massively. We saw a pandemic and its corresponding restrictions set fire to an already broken supply chain. Quantitative easing was deployed at unprecedented rates and inflation rates are through the roof.
To do that, we must first analyze the driving forces behind price.
What Makes Markets Move?
I believe markets move based on a combination of two things. Firstly, the (weighted) average view on the future of all market participants. And secondly, how do these market participants think assets will perform considering these views.
Macroeconomic Events and Bitcoin
Assuming my “what makes a market move” hypothesis to be true, explaining the impact of macroeconomic events on Bitcoin should not be too complicated.
Generally, when macro-economic news hits the presses, I ask myself the following question(s):
Does this affect the bias of market participants (including mine)?
Markets are incredibly quick at reacting to the news, as people (and bots!) attempt to position themselves for new biases. However, they often overestimate the impact the news has and cause the price to move more violently than necessary. This creates opportunity.
The chart below shows how Bitcoin responded to the latest inflation data, marking down close to 3% in the 90 minutes that followed the news. From there, Bitcoin bounced back to retrace nearly half of that down move. It is only after that retrace that the market started to show its new fair value, based on the updated biases in the market.
This suggests that you have approximately 1-2.5 hours to form an opinion on the question I asked earlier. You don’t have to trade the original move, you just have to form an opinion on whether or not the average bias changes, and how.
Based on your answer to the question, you will know how to position yourself, and whether or not to go against the original move right after the news. And as always, not having an answer to the question is fine too. You can’t possibly know everything.
Now to successfully anticipate macro-economic events, you need to stay up to date. Usually, the signs are there. If you pay attention, there will be people telling you about upcoming events such as pandemics, inflation, or even war, before they hit the headlines. Find some people that fit that description and pay attention to their reasoning.
Soon, you will pick up how they seemingly know the future, and you just might be able to build your own “crystal ball”. Jokes aside, all you can do is make educated guesses based on the available information. That way, you can anticipate future events, rather than react to them as they happen.
Monetary Policy and Crypto
These changes in policy have real-world effects, which means they may affect the biases of traders and investors alike. As you can see in the chart above, major policy announcements can be turning points in the market.
Navigating the macro-economic landscape can be incredibly complex, and it takes time to get familiar with all theories and concepts. However, investing some time in this will not only benefit your trading but your personal financial situation too. After all, you can make more educated purchasing decisions, both in and outside crypto.
By combining your current trading skillset (whether that be fundamental analysis, technical analysis, or both) with analysis of the macro-economic environment, you will become an even more competent trader or investor.
I’ll leave you with a credo I can never repeat too many times: “To trade successfully, you must analyze the future, not the present”. Invest time into this, the clearer you can estimate the future, the better you will trade.
Writer’s Disclaimer: This article is based on my limited knowledge and experience. I enjoy learning and sharing my ideas with readers like you, but my articles should never be construed as advice in any shape or form. I am not an expert, nor a financial advisor. I wish you the best of luck.