• BCMstrategy, Inc.

Case Study: #Cryptocurrency Volatility Correlations

Updated: Oct 12, 2021

PolicyScope backtests revealed last week a high degree of advance correlation between the lexicon term "cryptocurrency" and BitCoin prices during 2019-2020. The report was released just in time for the latest market gyrations driven by public policy shifts.


Digital currency markets were roiled last week when the Chinese government announced a ban on non-sovereign digital currencies. In the United States, the Chairman of the Securities and Exchange Commission in testimony to the Senate vowed a crackdown. BitCoin prices fluctuated. Less noticed, however, was today's move by reserve currency central banks as they continued their slow but steady acceleration towards issuing a central bank digital currency (CBDC).


These activities represent two sides of the same coin (forgive the pun) as central banks increasing compete with private currency issuers. PolicyScope data and PolicyScope Platform users are not surprised. We have been seeing the near-daily policy fluctuations concerning cryptocurrency policy throughout the month of September alternating with spikes in rhetoric while action regarding CBDC policy remains relatively ignored within the media cycle.


The same dynamic holds true for the year as a whole, as noted by the charts on the left. The chattering classes consistently converse about cryptocurrency while policymakers pursue strategic CBDC priorities in plain site but with little attention.


BitCoin (and other digital currency) price gyrations in response to China's action last week demonstrate the nearly immediate impact that public policy can have on market prices.

But what if we were to tell you that you could anticipate market volatility associated with public policy by measuring all official sector activity and media coverage, not just those activities that generate blockbuster headlines?

Among other things, you could take strategic positions to capitalize on the inevitable downstream gyrations triggered by headline risk. You could be part of the smart money that is rarely surprised by headlines.


Welcome to PolicyScope data regarding digital currency public policy.


We have just completed our first backtest of PolicyScope data. We including in this backtest only the "cryptocurrency" lexicon term. We tested the data generated by our objective, patented process against BitCoin prices, S&P volatility, and the VIX.


The backtest uncovered material advance notice of Bitcoin price volatility with a high degree of correlation, sometimes by as much as 22 days in advance, during 2019-2020.




As the video below shows, the advance notice of BitCoin price volatility encompasses a range of activity types consistently across a two year period (2019-2020) despite the onset of the pandemic. The full analysis appears in THIS WHITE PAPER.



Kind of makes you wonder what kind of market advantages you could acquire today if you were using PolicyScope data, right?

 

BCMstrategy, Inc. measures public policy risks using a patented process that converts the words of the public policy process into numbers objectively, daily, and globally. The Digital Currency lexicon contains over two years of data (starting in 2019) and a wide range of terms including "cryptocurrency" and "CBDC." Customized alerts and signals are available from BCMstrategy, Inc., delivered via API and FTP as well as through interactive dashboards. The full dataset (including monetary policy, trade policy, COVID-19, and 1000+ other lexicon terms are available to professional investors exclusively through the Bloomberg Enterprise Access Point.