Markets and Analysis

In recent days there has been a slew of activity on the blockchain as traders lie in wait for the announcement of the Bitcoin ETF, which will likely act as the loud starting gun for the Bull Market in Crypto. However the Bull market has been in session for much longer than the prospective 11 January 2024.

In 2020, John Kay and Mervyn King released Radical Uncertainty. This book was my first exposure to behavioral economics. It taught me one important thing. Economies, however small, are living creatures and as an economist it is my goal to constantly watch the condition of this creature. In this post, I'll attempt to explain how I do this.

What makes a life?

It is common knowledge that the life of an autonomous organism requires three things - spirit, soul and body. Economies have each of these things. It is weird but I will break it down.

Body of the Economy

What is the body of the economy? It is the most visceral part of the market and without it, it wouldn't exist. It is simply the supply of savings (Other People's Money) and the desire to borrow that money. The quality of the borrowers is an important metric as well.

The relationship between borrowers and savers is known as interest. The interest tends to drop in the beginning of bull markets as the supply of savers increases and borrowers begin to take this out for leverage. Lower rates of interests encourage borrowers to make prudent decisions to gain profit.

At some point savers slow down and rates of interest increase because borrowers rarely do. This leads borrowers to take on the more risk to earn the same or any form of profit. This is when borrowers and investors on leverage are most incentivized to go toward the riskiest investments and the health of the body begins to decline.

This is a very important metric. How do you measure it? Stable coin supply measures savers sentiment and liquidation charts illustrate borrower risk.

Spirit of the Economy

Many people discount Trading Analysis because it is a poor way to measure future sentiment in the market. This is true, but it is a great way to measure past and instantaneous sentiment to attempt to speculate on the future.

I find it extremely easy to measure this using the 200 Week Moving Average, something I learned from a famed Cobie on Twitter. Many of the assets in crypto are far too young to have a real 200 Week MA and we have to use the 200 Day MA. Regardless, for blue chip assets like BTC & Ether it is very easy to measure market sentiment with the 200 Week MA.

This metric encourages zooming out versus the daily. I tend to rely on the 200 Week MA of the SPY rather than a crypto metric because they are very volatile.

The Soul of the Economy

This is the most difficult part because the Soul consists of mind, will & emotions. This is always instantaneous and contains the least amount of investment narrative although without the Soul, there is no money to be made.

How do we measure this? Active Wallets on chain, but mostly Twitter, Lens and other Social Media Apps where we can directly watch the market sentiment for the mouth of the bag holders.

This part of the market is very toxic so know it is okay to disconnect from it every once in a while. Rely more on onchain activity than you might on Social Media, but know both are important.

Dr. Trader

The goal of the good trader is to be constantly in tune with the market and aware of its conditions. If you use leverage in any capacity you should definitely be aware of these metrics.