As hard as it may be to believe now, you could buy a bitcoin for only $100 if you went back to 2013. Later on, bitcoin would achieve a peak value of more than $62,000 per bitcoin! Even today, the value of a bitcoin is more than 160 times higher than it was back in 2013.
With increases in value like that, it is no surprise that people are looking for the leading economic indicators and anything else that can help them predict the future behavior of cryptocurrency markets. At the same time, some people try to understand the crypto market without ever investing in understanding the appropriate economic indicators.
Understanding what numbers to pay attention to can help you notice when there is about to be a shift in crypto market demand in one direction or another. So what should you pay attention to if you want to manage your crypto investment risk?
Read on to learn all about the most important economic indicators to track when it comes to investment in cryptocurrency!
Track Inflation for Crypto Risk Management
Knowing which economic indicators to track requires understanding a little bit about the world of cryptocurrency. For example, many people use cryptocurrency as a hedge against inflation.
In this way, some people have chosen to use cryptocurrency rather than silver or gold as a way of preserving value as inflation rises. This helps you understand the likely impact of inflation rates on cryptocurrency demand.
As inflation goes up, there is a tendency for demand for cryptocurrency to also go up. Inflation causes dollars and other forms of fiat currency to lose their value. Then, it makes sense for people to try to preserve the value of their wealth by storing it in forms that resist these kinds of inflation.
On the other hand, when inflation starts to go down, we might notice people starting to pull their money out of cryptocurrency investments.
Follow Trends for Cryptocurrency Risk Management
It can also help to track the value of bitcoin, the largest cryptocurrency. This is because the crypto market tends to swing up and down together. In other words, when Bitcoin is having a good day, most of the other coins on the market will also be having a good day.
The same principle also applies in reverse. However, it is important to understand the difference between the direction of a swing and its magnitude.
For example, Bitcoin might be going up in value, but only by about 5%. Some crypto coins will respond by also going up in value, but by only 2% or by 10% or more.
In other words, some coins track the direction of value shift in Bitcoin without necessarily also tracking the magnitude of that shift in direction.
Some people choose to invest in coins that have larger swings than bitcoin. Then, when Bitcoin starts to increase in value, they put some extra money in a coin that they hope will have a wider upward swing in value.
You can also use this kind of system to try to avoid losing money with your cryptocurrency investments. If signs show that Bitcoin is about to diminish in value, you might want to use that as an indicator that you should get out of some of your other cryptocurrency investments. That goes double for those that display wider market swings.
Lower Crypto Investing Risks by Tracking Employment Numbers
At one level of analysis, the cryptocurrency and the fiat currency markets tend to behave in opposite ways. However, the crypto market tends to track the general economic health of the market.
That means that anything that affects the health of the general economy can be theoretically used as an indicator of the likely future success or failure of crypto. For example, looking at employment information can be a great way to assess the future behavior of the cryptocurrency market. The more unemployment rates go up, the more you can take that as a sign that the economy is struggling.
If such trends continue, you can expect the value of cryptocurrency investments to also decrease somewhat. Although other factors may change the overall trend of cryptocurrency market fluctuations, the basic principle is sound.
It is especially valuable to look at employment numbers from countries like the United States. It is a bad sign when developed nations are having trouble employing their people. That may indicate that cryptocurrency investments may lose value in the future.
Use the CPI as an Economic Indicator
The consumer price index is another great indicator of market strength. The consumer price index can also be seen as an alternative indicator of inflation.
Using it can combine some of the insights that come from the inflation rate and the general economic health of a country. That means that you may be able to tie the consumer price index to cryptocurrency market behavior.
Track Crypto Risks With Central Bank Info
Many people think of the market as something that moves according to its own imperceivable patterns. However, we know that the market is affected by the decisions of institutions.
In particular, the World Bank can affect the economy in huge ways. You can read the minutes from World Bank meetings to keep up to date on their decisions.
This can also help you predict what their future decisions might be. If they make a decision that is relevant to the world of crypto, that can help you adjust your investments early on.
Understand the Leading Economic Indicators to Track for Crypto
Many people worry about risky crypto investments without tracking the leading economic indicators that might help them diminish their risk. When it comes to crypto investment, it is important to be willing to do your due diligence to get the best sense possible of where the market is likely to go.
To learn more about how to lower your risk while investing in cryptocurrency, reach out and get in touch with us here at any time!