Being macro in digital assets means considering historical environments in which cryptocurrencies have thrived as well as more challenging environments, such as 2022. Opinion by Tgroth8
To represent nominal yields , we use two-, five- and 30-year U.S. Treasury yields; we subtract the five-year breakeven inflation rate derived from TIPS to create a proxy for two-, five- and 30-year real yields . U.S. dollar denominated baskets of advanced and emerging economy currencies are used alongside a broader basket as three proxies for the dollar . And option adjusted spreads for high-yield corporate bonds rated BB and CCC are used alongside an investment-grade index to represent U.S.
Trend signals are generated from the data within these four macro indicator buckets, then averaged to result in a positive, neutral and negative score for the financial condition regime. Risk-adjusted return ratios are calculated on BTC and ETH within each regime and compared to an unconditional buy-and-hold strategy shown in the figure below.
From this preliminary macro regime analysis it’s clear that financial conditions matter when investing in digital assets. Keeping a pulse on market conditions, particularly real and nominal interest rates and credit conditions, can help to navigate the crypto cycle better by offering a better risk-adjusted return than a simple buy-and-HODL approach.
In summary, as investors in cryptocurrencies we’d all benefit from taking a broader macroeconomic and market perspective to not miss the forest for the trees.Edited by
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