The #FTX Policy Reaction Function

For the last week, people have been asking: what does your data show regarding the FTX implosion? It's a good opportunity for a tutorial on how to read our data. Spoiler alert: the policy reaction function has not begun to approach a peak.


Background

We generate quantitative momentum and volatility data from the language of public policy using award-winning, patented technology. We measure the path towards a decision in the official sector globally, daily, automatically, objectively (without sentiment analysis).


We have been generating quantitative momentum data regarding cryptocurrency specifically since January 2019. Backtests of the first two years of cryptocurrency data in 2021 showed that our data anticipates volatility in the S&P and VIX....on average 10 - 22 days in advance.

How To Read Our Data: In other words, the data today enables users to see around the corner into the near future.

Today's quantitative data tells you that the market will soon be pricing in a range of technical public policy shifts after they have had a chance to (i) read the new developments, (ii) assess how the developments impact pre-trade and post-trade portfolio risks, and (iii) price the risk in relation to a tradeable asset.
It's terribly inefficient and time consuming.
Our backtests indicate it can take as much as 22 days for prices to react. Our award-winning, patented process shortens this cycle.
  • Using our quantitative data helps portfolio managers anticipate the market reaction function.

  • Using our structured language data helps advanced users anticipate the policy trajectory.

  • Using the data filtered via the newly attached stock ticker symbols helps trading market users anticipate market reaction functions. The more technical move, the larger the informational advantage because technical policy shifts rarely generate headlines immediately.

  • Using the data paired with institutional news feeds delivers additional informational advantages by helping users identity policy shifts that are hiding in plain sight.

During a crisis situation, policymakers will still proceed forward with pre-planned releases and initiatives. So the data delivers additional value by surfacing to users signals about ongoing policy activity.


With this in mind, let's look at the cryptocurrency policy volatility data for the first half of November.


The Crypto Policy Charts -- First Half of November


We generate data for the specific term "cryptocurrency" in addition to its broader synonym "digital assets."

Media coverage (the BLUE rhetoric line) was understandably high last week. But note that actual regulatory action (the GREEN line) was low. Why? Because....

  • FTX and most of its ecosystem are not (yet?) regulated entities.

  • Instability in the cryptocurrency universe has not yet spilled over into the formal, traditional financial system.

  • Regulators are still collecting the facts, which means enforcement actions remain in our future.

  • Policymakers will generate regulatory standards once the full extent of the FTX implosion has become clear.

So what were policymakers doing last week when FTX was melting? Look at the top three initiatives that generated little to no attention last week. Policymakers were

  • warning banks about exposures to the crypto sector in a formal document that has to have been written weeks ago (Federal Reserve)

  • presenting proof that cryptocurrencies accentuate and accelerate wealth inequality (Banque de France)

  • proposing a cyberincident reporting requirement that expressly encompasses I am also interested in comment on whether the proposal encompasses both "digital assets and algorithmic or artificial intelligence systems" in addition to traditional trading infrastructures.

These initiatives operating in the background provide a foundation for future rulemaking.


You can generate more accurate nowcasting projections and risk analysis using objective data. You can spot with clarity developments others miss.


If you want signals about what policymakers are going to do tomorrow in response to the FTX situation, you need to be using our data today.