This Week…

We’re diving into why macro and crypto are one in the same.

Since the advent of crypto, most investors have thought of these ecosystems as separate. But as time passes and digital asset adoption becomes more mainstream, the correlations between the two have become pronounced — and that trend is only set to increase.

Now is the time to study up.

In this issue, we’ll cover 2 things:

• The big picture macro-crypto correlation.
• The macro data crypto investors need to watch.

Let’s get started.

Welcome to the Game

Welcome to The Game of Investing, a bi-weekly newsletter bringing you “aha” moments and actionable lessons from Real Vision experts. No matter your level of expertise, markets are tough — which is why we all have to put in the work. Ultimately, the game of investing is a competition with yourself. Our mission is to help you navigate the path to success. Prepare to level up.

LEVEL 1  — Why Crypto is Macro

When Bitcoin first burst onto the scene, the dominant narrative was that its fixed supply made it an attractive inflation hedge. Over the long term, this has proven true, with bitcoin outperforming all other assets over the last decade.

But like any other asset class, crypto price action reflects the broader market environment, and this complexity extends beyond just inflation. 

As investors, it’s our job to find the best risk-adjusted opportunities over our individual time horizon.

If your time horizon is long-term, much of this comes down to currency devaluation.  

• Historically, gold and oil have served as popular “store-of-value” alternatives for diversified portfolios.
• But lately, bitcoin, ethereum, and other coins like solana are making big moves in a high-rate, high inflation environment.
• Some investors believe that digital assets like high-end NFTs will also hold their value.

At Real Vision, much of our co-founder and CEO Raoul Pal’s recent work has focused on how global liquidity levels drives currency debasement and the business cycle.

According to Raoul, when global liquidity expands, the business cycle tends to follow suit and risk assets gain momentum.

🔑 The key, then, is understanding how to track liquidity and the business cycle, and knowing at what stage of the cycle assets like crypto will outperform.

To dive deeper on that, check out the Macro Investing Tool in the RV Marketplace.

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LEVEL 2 — The Macro Data That Matters

Just like we would when evaluating tech stocks, it’s important to focus on 4 key macro indicators when projecting future crypto performance:

• The Consumer Price Index
• Nonfarm payrolls data
• Fed interest rate decisions
• Global liquidity

The Consumer Price Index (CPI) measures the average change in prices paid by U.S. consumers for a basket of goods and services. CPI is generally considered a useful tool to track inflation.

And why’s inflation important? Here’s a summary from the AI bot on the new Real Vision platform:

That last sentence is pivotal. When inflation misses market expectations, it can cause big moves in risk assets as the market reprices expectations.

The Non-Farm Payroll (NFP) Report is a monthly measurement of jobs gained (or lost) in the U.S. in the previous month, excluding those in farms, households, and non-profits. This is the leading data point to gauge the overall health of the U.S. economy, with job additions indicating economic strength and job losses signaling weakness.

• When job losses spike, it’s a good sign that lower interest rates will follow.

Federal Reserve interest rate decisions are meetings when the Federal Open Market Committee (FOMC) assesses economic conditions and determines the monetary policy path forward.

• Low interest rates can supercharge economic growth and asset prices, but the reverse is also true.
• High rates tend to tighten financial conditions and create a “reverse wealth effect” that leads to lower asset prices — particularly in riskier asset classes like tech stocks and crypto.

There is, however, one caveat…

Global liquidity refers to the volume of financial flows happening across global markets and the economy. 

• Liquidity matters because, ultimately, money has to go somewhere.
• Typically, it goes into equities, fixed income, or money market accounts.
• With the recent approval of several bitcoin spot ETFs, more liquidity is flowing into crypto than ever before.

And right now, even though interest rates are high and inflation remains stubborn, liquidity is also increasing.

The result? Economic strength and stock markets and crypto surging back towards record highs.

Next Time

Thanks for reading. Next time, in our 30th issue, we’ll look back at the last year of lessons in the Game of Investing.

See you then.

Have feedback on The Game of Investing? We’d love to hear it. Just email us at essential@realvision.com to share your thoughts.