Navigating Crypto Markets: The Influence of Macroeconomic Factors

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Navigating Crypto Markets: The Influence of Macroeconomic Factors

Crypto markets have undergone significant changes in recent years, and the Bitcoin halving is sparking a new wave of speculation and analysis. After studying the trends of previous halving, Coinbase analyst David Han concluded that the current cycle will also depend on macroeconomic factors. He describes this in detail in his report.

Managing Crypto Markets by Macroeconomic Factors

David Han notes that the direction of development of digital asset markets will depend on macroeconomic factors, even if the fundamentals of cryptocurrencies remain stable in general. These factors are largely exogenous and include rising geopolitical tensions, higher long-term rates, reflation, and rising government debt. And the recent rise in the correlation of altcoins to Bitcoin only emphasizes this, pointing to the latter’s leading role in the cryptocurrency space.

While previous halvings have historically kickstarted a bull market, “these cyclical runups have often been accompanied by other ecosystem catalysts that provide additional tailwinds,” the report said.

He claims that although cryptocurrencies were primarily seen as a risk to the asset class, Bitcoin’s resilience and the approval of spot ETFs have created a bifurcated pool among investors: some see Bitcoin as a purely speculative asset, while others see it as “digital gold” and hedge against geopolitical risks. The growth of the second group partially explains the decrease in the size of the pullbacks observed in this cycle. 

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The Macro Environment is Important for Crypto

Even though endogenous catalysts for cryptocurrencies are expected to emerge, David Han believes that the macroeconomic landscape will play a more important role in the near term. Analyzing previous halvings, he notes the role of macroeconomic factors.

However, the main effects of the Bitcoin halving in 2012 were exacerbated by the impact of the Federal Reserve’s quantitative easing program and the US debt crisis. And in 2016, Brexit and the controversial US election could have caused financial problems in the UK and Europe. Instead, the COVID-19 pandemic in early 2020 led to an unprecedented level of stimulus, which dramatically increased liquidity.

He is convinced that this cycle is no different from previous ones and the macro environment is just as important for cryptocurrencies, including Bitcoin. He emphasizes that the growing importance of geopolitics around the world, amid the broader pace of deglobalization and reshoring, is likely to be the defining macro characteristic of this cycle.

Read Also: Hong Kong Approves Bitcoin and Ethereum ETFs, Market Reaction

In summarizing, David Han writes that the macro environment and related verticals of cryptocurrency breakouts have historically played an important role in catalyzing cyclical bull markets. While this process usually takes several months, it varies from cycle to cycle. According to him, the changing market structure with the influx of ETFs and the decline in venture capital funding will contribute to the uniqueness of this cycle.

He also points out that the previous cycle increased Bitcoin’s sensitivity to global liquidity due to the stimulus caused by the COVID-19 pandemic. However, global liquidity is no longer growing at such a high rate but rather has taken a backseat to more significant volatility in both domestic and foreign markets. With this in mind, Han says the next cycle will be a test for Bitcoin to maintain value, provided that catalysts are more widely distributed in different directions.

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Cryptocurrency – Freedom and Decentralization

While the cryptocurrency community is discussing the approval of the Ethereum ETF, blockchain co-founder Vitalik Buterin reminds us of the main purpose of cryptocurrency. He believes that freedom and privacy should be seen as the foundation of any digital asset.

In a recent post on X, the expert reacted to a publication by the non-profit platform Rest of World. The latter reported on the use of facial recognition technology by governments around the world in the fight against dissidents. If you also thought of George Orwell’s “1984” by George Orwell, congratulations, you are being watched by Big Brother. 

According to data from Steven Feldstein, a researcher at the Carnegie Endowment for International Peace, government agencies in 78 countries are now using public facial recognition systems. In this regard, Buterin noted that in the real world, there is a decrease in privacy. 

“Better privacy online is one of the few tools we have to restore a little bit of balance. Privacy is normal. Support privacy.” he writes.

However, the cryptocurrency space, including Ethereum, faces its paradoxes. Despite its decentralized ideals, a significant portion of blockchain transactions face censorship, especially in terms of compliance with the Office of Foreign Assets Control (OFAC). This controversy has sparked several conversations about privacy on Ethereum.

The discussion has centered on whether Ethereum, as the underlying layer of blockchain technology, should ensure transaction privacy. Vitalik Buterin made it clear that the introduction of transaction privacy by default could affect the scalability and efficiency of the network.  The network’s development team is working on scalability fixes and the use of ZK proofs to eventually address some of these major issues.

Read Also: Top Tips from Vitalik Buterin on How to Protect Yourself from Deep Fakes

Charles Hoskinson, the founder of Cardano, shares similar views with Vitalik Buterin. In his X, he writes: “Remember, Crypto doesn’t want to set the world on fire, it just wants to start a flame in your heart”

While his post serves as a reminder of the true purpose of cryptocurrency, he also touched on what he sees as a disturbing trend in the industry. During a live broadcast on X, Hoskinson said that some participants in the crypto space are actively creating fake activities and promoting certain projects, pretending that these activities reflect the real situation in the industry.

“The problem with our industry is that we let short-term narratives and carnival barkers dominate the conversation,” Hoskinson said.

He also assured the Cardano community that he is committed to creating a transparent and open social space where people can learn about the network based on their interests and curiosity.

Volodymyr Nosov, CEO of WhiteBIT, also reminded us of the benefits of cryptocurrencies. In a recent interview, Nosov pointed out the potential advantages of cryptocurrencies compared to gold. He emphasized that most people have more trust in the latter because “someone said that gold has a limited issue.” However, is this true, and how can the real amount of gold be calculated? “Tomorrow, an excavation will be carried out somewhere in India and something like Germany’s gold reserves will be found. What will happen to the gold price?”

He also emphasized the benefits of the fastness of cryptocurrency transactions: “How long does it take you to make a call to your friend in the United States? 3 seconds. How long does it take to send Bitcoin? 3 seconds. How long does it take to send gold? This is the challenge of the times, the challenge of the present.” 

Summary

A report by Coinbase analyst David Hahn emphasizes the importance of macroeconomic factors for the current Bitcoin halving cycle. Macroeconomic factors, such as incentives and global liquidity, play a crucial role in shaping the crypto market, and they are more important than ever.

In addition, the issue of privacy and freedom in the digital space remains relevant. Given all these challenges and prospects, cryptocurrencies continue to retain their value as an asset, but their future will largely depend on how they adapt to global macroeconomic and social changes.

Read Also: Unlocking the Potential of Crypto Payments: A Closer Look at Payment Methods

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I'm an aspiring digital journalist. I have worked with web3 companies for 3 years as a copywriter. Prefer to write articles on AI, Web3, blockchain technology and cryptocurrency on Medium and Substack.