The Impact of Macro-Economic Factors on Crypto Futures

LBank Exchange
4 min readNov 20, 2023
The Impact of Macro-Economic Factors on Crypto Futures

The crypto market, known for its volatility, has shown a complex relationship with macro-economic factors. Bull and bear runs often coincide with periods of loose or tight monetary policies, making it essential to understand the connections between traditional economic indicators and the crypto ecosystem. This article explores the impact of macro-economic factors, particularly focusing on the recent shift in interest rates, on crypto futures.

Crypto as a Hedge Against Inflation:

The theoretical role of crypto assets as a hedge against inflation is a topic of ongoing discussion. While the track record is considered too short for conclusive evidence, there is observable adoption in emerging markets experiencing high inflation and currency depreciation. This suggests that crypto assets may serve as a refuge for investors seeking to protect their wealth in such economic conditions.

The inverse correlation between the U.S. dollar and crypto asset prices has been a notable trend. When the dollar weakens, crypto prices tend to rise, and vice versa. This dynamic highlights the influence of global currency movements on the crypto market and underscores the importance of monitoring fiat currencies alongside crypto investments.

Relationship Between Crypto and Macroeconomic Factors

The relationship between the crypto ecosystem and macroeconomic factors becomes evident in favorable market conditions that increase investors’ appetite for higher-risk assets like cryptocurrencies. Changes in interest rates and borrowing costs can influence crypto markets through various channels, impacting venture capital decisions, blockchain adoption, and mining profitability.

Effect of Macro Factors on the Crypto Market

Federal Reserve

Analyzing the past decade, a pattern emerges where crypto markets perform well during periods of fast growth in the broad money supply (M2), driven by reduced interest rates, quantitative easing, and fiscal stimulus. Conversely, monetary tightening appears to restrict the appreciation of crypto assets. The inverse relationship between interest rates and crypto prices have been explored, demonstrating how the actions of major central banks, particularly the U.S. The Federal Reserve can influence global crypto markets.

Interest rates add another layer of complexity

As rates climb, the cost of living, especially mortgages and rents, skyrockets. This economic squeeze further constrains disposable income, contributing to the market’s current state of uncertainty and stagnation. The anticipation of fewer interest rate hikes is seen as a potential boom for crypto and technology investments, aligning with the views of influential figures.

The Fed’s Inputs

The communications and decisions of the United States Federal Reserve (the Fed) hold a special place in the hearts of crypto traders. The Fed’s interest rate decisions, communicated through press conferences, meeting minutes, and formal announcements, can trigger significant market movements. Investors closely analyze these communications, seeking clues about future monetary policy directions. If the Fed’s decisions align with expectations, it often results in market rallies. Conversely, unexpected or aggressive moves can lead to market crashes. The influence of the Fed’s governing board, led by Chairman Jerome Powell, is paramount in shaping market sentiment.

Monetary and Fiscal Policies

Monetary and fiscal policies wield significant influence over the crypto market. Expansionary monetary policies, characterized by increased money supply, often have a positive impact on the crypto market. Conversely, contractionary monetary policies can have adverse effects. Similarly, expansionary fiscal policies, where the government stimulates demand through increased spending, tend to boost the crypto market. The ongoing global response to the COVID-19 pandemic further complicates this relationship. The severity of the pandemic is positively correlated with the crypto market due to heightened expectations of expansionary policies. Simultaneously, pandemic-induced volatility in traditional markets makes the crypto market an imperfect substitute.

Unemployment Rate

The job market’s health, reflected in unemployment rates, plays a MAJOR role in shaping the Fed’s decisions. The Fed aims to maintain stability by keeping unemployment around 4%. As rising interest rates often correlate with increased unemployment, the Fed carefully considers its moves in light of employment data. Positive job creation news can be interpreted negatively by investors if it signals potential interest rate hikes. The upcoming jobs report, scheduled for July 8th, will be closely watched by crypto futures traders.

Other Macro Factors

Beyond these major factors, external global events can impact the crypto market. Geopolitical tensions, natural disasters, and unexpected policy changes can introduce volatility. The tech sector’s correlation with the crypto market is also noteworthy, as disruptions in tech stocks can ripple into the crypto space.

Wrapping Up

In understanding the impact of macroeconomic factors on crypto futures, the landscape appears intricate and dynamic. The ability of crypto to navigate these challenges and emerge as a resilient asset class hinges on its adaptability and independence. Investors and analysts will vigilantly monitor the evolving macroeconomic backdrop to decipher the trajectory of the crypto market. The journey ahead promises continued excitement and challenges, as the crypto space strives to find its footing in the ever-shifting macro-economic terrain.

Disclaimer: The opinions expressed in this blog are solely those of the writer and not of this platform.