The global economic machinery is a complex system, and many cogs are in place that make the whole structure moving forward. With both traditional and crypto markets in a slump, it would be wise to look into some of the indicators that affect them.
Although crypto is a decentralized system, there are external factors that do affect its performance.
Consumer Price Index (CPI)
The Consumer Price Index (CPI) tracks changes in the prices of a basket of consumer goods and services. To ensure price stability, the central bank pays close attention to this statistic. It is a benchmark to measure developments in the economy, and it also measures inflation in a country’s economy.
According to a report by Bloomberg, JP Morgan analysts said that many investors flock to crypto, believing it is a good hedge against inflation. Now whether inflation is good or bad is an endless debate. Nonetheless, it can be dangerous if inflation becomes too high and spins out control.
In May 2022, a record inflation number for the US caused disturbances in stock, crypto, and bond prices. High inflation numbers have consistently decreased markets as investors cash out their assets.
Consumer Confidence Report
The Consumer Confidence Report, as the name suggests, is a measure of consumers’ optimism regarding the economic and financial situation of the country. And needless to say, this indicator also impacts the price and demand of stocks and cryptos. Consumer Confidence increases with high stock returns; however, high Consumer Confidence is followed by low stock returns.
A recent report by Morning Consult found that consumer confidence was higher among crypto owners than the average American adult. Additionally, it was found that people earning more than $100,000 a year are more likely to own crypto.
Non-Farm Payroll report & crypto
This report tells the change in the number of people employed in the previous month. However, it excludes employment in the farming industry and some other spaces. A higher number in this indicator means strong employment growth. Moreover, this can lead to more foreign investors throwing their cash at the country. Inversely, a lower number means a weaker economy.
If more people are employed, investments increase, thereby increasing stock prices. Historically, Bitcoin (or crypto) gains when the US dollar falls. This makes the Non-Farm Payroll a critical indicator to watch. Not only crypto but commodities such as oil, gas, and gold also increase if the NFP number is lower than expected.
DJI, SPX, Nasdaq Composite Index & Crypto
Supply and demand affect the price of equities. But it just so happens that they also affect the cost of crypto. Stock market indices and crypto are correlated, and many have pointed out that Bitcoin trades similarly to a tech stock.
Cryptocurrency assets like Bitcoin and Ether had little association with the main stock indexes before the COVID-19 outbreak. They were considered to aid with risk diversification and serve as a buffer against fluctuations in other asset groups. After the enormous central bank crisis reactions in early 2020, however, things altered. Due to the accessible state of the world economy and increased investor risk appetite, both the price of cryptocurrencies and US equities increased.
In developing market nations, some of which have led the way in adopting crypto-assets, it is more apparent that there is a higher correlation between cryptocurrencies and stocks.
Usually, when stock prices fell, crypto gained. But sometimes, they both rise and fall in tandem.