Event-driven Investing: #DigitalCurrency Case Study

Markets have long known that policy shifts drive price action. They have treated the news cycle as a type of event risk, programming automated trade execution engines to trigger buy and sell transactions based on the language in a headline or a news story.


Being able to assess public policy risks quantitatively using our patented PolicyScope data opens up a range of investment possibilities for portfolio managers. More targeted investment strategies are now possible earlier in the policy cycle, driven by objective data.


Consider the last 30 days of the global public policy cycle regarding digital currency. Russia's invasion of Ukraine has kicked the digital currency policy process into high gear. In mid-March, the United States announced a major, multi-dimensional policy initiative addressing cryptocurrency, stablecoins, AND CBDC initiatives which could culminate in legislation that supports the issuance of a digital dollar. Our policy risk measurements registered this activity as follows:

The release of the Biden Executive Order on March 8 triggered a spike in media coverage (the blue line) on May 9. However, look at the low level of leaks (the red line) and action (the green line) the prior week (March 4-5). Our own blogpost on March 2 noted that policymakers were preparing for a major announcement in reaction to Russia's invasion of Ukraine..


Over the last 30 days since that announcement, EU officials took action followed thereafter by the IMF/World Bank/FSB spring meetings. Aggregate public policy activity regarding digital currency as a whole exhibited spikes accordingly:

But the more powerful investment insights arrive when using more targeted approaches. The screenshot above shows aggregate activity globally for ALL digital currency policy issues (50+ lexicon terms, including micro-targeted combination terms related to AML, privacy, and even COVID-19). Compare instead the distribution of activity for the three main types of digital currency (cryptocurrency, stablecoins, and CBDCs):

Look closely at the scale of activity first. Then compare the blue line (rhetoric/media coverage) against the green line (action).

Media coverage is concentrated predominantly on cryptocurrencies but as our patented quantification illustrates graphically the vast majority of policy activity instead is focused on stablecoins and CBDCs. If your main source of information regarding digital currency policy is from the media, you are missing the strategic shifts.

The patented process that delivers this quantitative data delivers to portfolio managers and strategists significant insight regarding the focus of policy activity even before they start programming automated trade execution engines.


Portfolio managers using our digital currency policy volatility signals (DCVS 1 - cryptocurrency; DCVS 2 - CBDC) can automate alerting and risk signals, accelerating their ability to generate strategic trades from publicly actionable information before the news cycle has been triggered. Pair the DCVS data with calendar data using our countdown clocks or with market data, and the alpha generation opportunities increase exponentially.

Our system may be programmed by domain experts, but this does NOT mean we are replacing human strategists and analysts. Instead, we are delivering to markets an entirely new -- and far more efficient -- way to conduct market research.

Human experts interacting with our data through our V3 Bloomberg Terminal App or through customized internal dashboards fed by our API, receive access to the underlying policy language through highlighted PDFs or structured, machine-readable text. Humans triage and locate key developments faster, then they speed-read their way through the documents, connecting the dots faster. The longer the document, the greater the advantage as the demo video for our V3 Bloomberg Terminal App illustrates:

Moreover, because they are reading source documents before the news cycle has had a chance to deliver the information to a broader public, the informational advantages and the ability to generate unique insights increase dramatically as well.


For more information on how our patented PolicyScope data can help you and your team acquire informational advantages and alpha generation opportunities, contact us today:

 

About BCMstrategy, Inc.: The company helps portfolio managers and strategists anticipate market volatility related to public policy/headline risk and take strategic positions in the market by delivering quantitative volume-based objective data drawn directly from the public policy process paired with data generated from media coverage from fact-checked journalism publishers like Dow Jones and ThomsonReuters. Volatility signals are available via API. Charts, graphs, and verbal data are available through the V3 PolicyScope Data app on the Bloomberg Terminal at: {APPS PLCY <GO>}.