When Crypto and Global Macro Collide

Which picture above is not like the others? Which picture above challenges accepted wisdom about the focus of public policy in the digital currency arena right now?

Obviously, the picture on the left. Action levels regarding "cryptocurrency" during 2021 were never high....and then they started declining during the autumn.

The pictures illustrate a fundamental truth about why PolicyScope data provides such a powerful mechanism for anticipating market volatility and public policy outcomes. Quantitative data illuminates what the noise of the news cycle obscures.

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In this case, it may feel like everyone is talking about cryptocurrency because they are. But the focal point of attention in the public policy space is hiding in plain sight.

Policymakers from the IMF to the Bank of England and beyond this week are indeed talking about financial stability risks associated with crypto-assets and crypto-currencies. The IMF is going farther, making the case that cryptocurrencies pose the risk of destabilizing capital flows.

The increasingly sharp upward slope of activity this autumn all relates to sovereign digitl currency issuance and their close cousins -- digital currencies backed by sovereign currencies (i.e., stablecoins). Policymakers continue to ramp up their action levels regarding digital currencies backed by sovereigns...and in a very artful verbal shift they are now talking about "unbacked cryptocurrencies" (which constitute 95% of the cryptocurrency market). It's a lovely way to throw shade on privately issued currencies.

Global macro analysts everywhere are starting to take notice. But if they restrict their focus only to cryptocurrencies, they are going to miss a a larger macrotrend. If the IMF is right that cryptocurrencies create the risk of destabilizing capital flows, what might sovereign digital currency issuance at scale do to the velocity and shape of intermediation and supply/demand curves?

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PolicyScope data (including 127 digital currency lexicon terms and global coverage extending back to 2019) is available exclusively and immediately to institutional investors through the Bloomberg Enterprise Access Point.

Interoperability between PolicyScope data and market data will soon also be available in the Bloomberg Terminal.