How Geopolitics and Macroeconomics Influence Token Volatility - Valentina Marzioni

I'm very happy to be here today to talk about one of my you can see hit behind me the title of my speech is how geopolitics and macroeconomics influence token volatility today we are all aware um of how macroeconomics and geopolitics impact the price movement of crypto asset but back in 2021 when I first started uh promoting this IDE on social media this awareness was still lacking in Italy so in fact I feel like some P pioneer of this concept here before we dive in I want to highlight the key question we are going to answer today I don't know why it doesn't work first qu the first question is does monetary policy affect the crypto sector the second one is how does the perception of a recession affect the crypto industry with the data we have now and then will cryptocurrencies ever become a safe heaven asset set now uh I will do my best to be as clear as possible during this presentation and I want to have a pragmatic approach I also had some footnotes for the one less familiar with financial terminology so if by the end of this speech this question aren clear for to you it's not my fault just kidding anyway first of all uh let's highlight an important Point although there are factors that generally influence all the markets each market whether it's crypto Bond equities or currencies has unique factors that specifically impact it and if you want to make a broad distinction between what influences crypto prices the most we can divide the factors into two categories so we have General factors that also affect traditional asset and then we have intrinsic spe factors specific to the crypto market so what are the general factors inflation interest rate monetary and fiscal policies geopolitical risk economic policy uncertainity and also operating profit the last one is more correlated with the equity Market but today is very important also to take a look at this factor from the other side we have specific Factor like Market confidence and adoption regulatory framework technological development and also internal shock another important aspect to consider is that traditional assets are subject to government regulation which in the case of crypto asset are not yet as developed so while there are General factors it's crucial to keep in mind that we need to look both inside and outside a specific market now as investor within the market what is our main goal is it just to make money yes but if you want to make money we need to understand an important concept and this concept is is the hierarchy of information when analyzing any kind of information we came across and I want to give you an example let's say there is a significant escalation in the middle eern conflict forcing NATO to take much more direct action than it is doing currently the primary sorry but at the same time the FED decide to cut interest rate which event do you you think the market would prioritize unless the FED Cuts rate by an extraordinary margin in one session uh the market would likely to focus much more on the war therefore the first step is to understand this hierarchy of information works and how it influenced the market and the best way to do this is to study history and analyze past price movements so uh okay there is another important things that I want to let you say uh let you know sorry uh that right now today uh the correlation with crypto market and um traditional Finance is not only correlated to macroeconomy or uh fiscal policies and all this stuff but also uh there are other factors that are indirect because generally a favorable Market condition influence investors appetite for risky asset but changes in monetary or fiscal policies can affect crypto markets in more indirect way compared to traditional asset and I want to give you two example when the cost of money increase financing cost also rise this increase impacts the decision of financial entities from Banks to venture capitalist looking to invest in the blockchain space and what it uh does ultimately affect the adoption because we have less money invested in the crypto sector so it is important to understand this topic moving directly into the blockchain word let's consider blockchain that currently lack an adopt um an application layer sorry such as Bitcoin if financing cost increase this could reduce the profitability of miners but however this always depend on the value proposition of the blockchain or toen in question and each case must be evaluated individually and then we are going to answer the first important question of the day so uh are crypto price prices correlated to changes in interest rate yes I think we we can all answer yes but the action of central banks in inuence the global economy including the crypto Market how does this things works so low interest rate tend to drive interest in higher risk asset while high interest rate tend to drive interest in safe heaven asset but what could happen because today the most important bank is the Fed but in the future maybe we could have another emonic bank so it's important not to see only what the FED does but also we need to understand also how it works uh with the other central banks and also is very important to understand what happened in the past because in response to the Great Recession from 2007 and 2009 the fed and other central banks in the west decided to lower interest rate to zero and kept them at this levels for nearly a decade and during this period the issuance of high yielding asset increased from less than 50 billion in 2009 to to over 200 to 250 billion in 2014 so yes interest rate influence crypto prices but then when we think about monetary policy I think all of you first think about about interest rate but all the central banks have other tools that can use for their monetary policy such as quantitative tightening and quantitative easing so what is quantitative easing quantitative easing allows central banks to fter is financial condition and produce long-term borrowing cost by lowering term premium term premum on government bonds and what happened in the past so after Great Recession a new emergency Q program was introduced in 2020 during the covid-19 pandemic before the resumption of quantitative tightening in 2022 so Federal Reserve balance sheet during this period picked at nearly 9 trillion in early 2022 and has since gradually declined so quantitative easing has fueled investors appetite for high risk asset but it happened also in the past because after a Bitcoin R in 2017 a significant price crash in 2018 coincided with the federal reservice balance sheet Reduction Program and so another bu bullrun happened in 2020 during which bitcoin price appreciated a lot and this coincided with a QE program initiated during the covid-19 pandemic in 2020 along with growing institutional interest in cryptocurrency market so also institutions are very important I would like to talk um about it more but I'm running out of time so I I will let you know one thing does the amount of money supply in the ecosystem affect crypto prices because a lot of people think that money supply influence a lot crypto price and it is is it true uh is true because cryptocurrencies have shown better performance during period of Rapid expansion in the M2 money supply but economically speaking it is still not possible to establish a clear casual relationship between M2 money supply and with cryptocurrency price because uh M2 money supply often is is often driven by rate Cuts quantitative easing and fiscal stimulus and then we are going to answer the last two question of the day uh my favorite question of the day so how can a recession affect crypto So based on what we have just discussed uh recession would like likely have a negative impact on cryptocurrency price as it would reduce interest in high yelding hasset uh and increase demand for safe heaven hasset but however at the same time in the current context our recession could be perceived as a failure of the current Global Order due to poor government policies which might increase demand for decentralized asset so if our recession is driven by inflation or negative government policies investors may turn to crypto that are not tied to any government currently there are several country without a stable currency and people turn to Alternative asset like Bitcoin to preserve their purchasing power but we are going to talk about it in a couple of minutes historically we have seen examples of Fiat currencies losing significant value following the collapse of government consider consider for example Germany after World War one so cryptocurrencies at the other hand are not subject to such a risk and could potentially be used as a medium of exchange and then we are going to answer the last question of the day so can cryptocurrencies become unhedged against inflation uh I know that a lots of people want me to answer yes but I study economy so for me is uh very difficult to say all the yes I have to explain with some data so uh as previously mentioned in countries with unstable fat currencies cryptocurrencies offer an alternative for preserving purchasing power but despite the limited data available cryptocurrencies are a promising candidate for Value preservation under unfavorable economic conditions however the data remains insufficient and the topic is too complex to provide a definitive answer at this time but leaving aside economies um with unstable political situation or hyperinflation it's important to consider cryptocurrencies as an edged against inflation in our Western economy so to understand this concept uh we need to start with the basic so inflation typically typically arises when monetary or fiscal policies or both excessively increase the money supply on when there is a supply shock expansionary monetary policies in increase the money supply and encourage investment so as we have mentioned multiple times during this talk this leads to higher attractiveness for highrisk Investments including cryptocurrencies therefore the reason cryptocurrency price tend to rise in tandem with inflation is not necessarily because of cryptocurrencies har sa F haset but rer to this Dynamic and also because we live in a very fast world this is important so I want to conclude to um give you my my point of view about this situation and what why I think macroeconomy and geopolitics are important so as geopolitics and macroeconomics influence the crypto Market the goal of a skilled investor must be to understand and to comprehend the Dynamics and especially understand how when and what factors influence the Market the most so it is essential also to exercise vigilance because the creation of new Financial products such as atfs will increasingly Heen the correlation with traditional Finance so thereby increasing the risk of contagion between two markets that inherently possess different characteristic so while cryptocurrency and traditional asset share some common Futures we must not forget that cryptocurrencies offer this distinct value proposition so what are the three skills the first one is understanding information and its hierarchy in relation to events the second one is knowing which data to examine for evaluation and how to correlate them and the third one is avoiding fixation on a single idea and being Swift in changing perspectives and taking action when necessary thank you thank you thank you Valentina