The Macro Puzzle: Decoding the Business Cycle

Part 1: Mastering the Forces that Shape Our Economies

GM DOers!

Crypto = Macro 🌍

I’ve been saying this a lot lately. 🗣️

I’ve also been sharing charts about global liquidity, inflation, and other confusing macro-related topics.

You might be wondering… what the heck does this mean? 🤔 And why the hell do I keep talking about this stuff?

The reason I have been sharing this stuff is that if you understand the direction of the macro environment, then you understand the direction of the overall crypto markets.

📊 As shown in the chart below, crypto is directly correlated to macro and global financial conditions (...more on why in a second).

“Macro”, by the way, is short for macroeconomics, which is a branch of economics that deals with the performance, structure, behaviour, and decision-making of an economy as a whole.

Ultimately, why this is vital information for you is because if you understand macro you can capitalize on the opportunity of crypto. 💰

When macro moves in our favour, the value of our beloved cryptocurrencies will increase, which means on-chain activity will increase, which means funding into the web3 ecosystem will increase, which means that innovation and adoption will increase. 📈

All of this matters to us at the forefront of web3. Whether we are building, investing, or participating, we need to understand the direction this space is going.

All of that starts with Macro. ✨

So, what I’m going to do is provide a 2-part masterclass on macro, the business cycle, and how it impacts our lives and web3.

This will give you a better understanding of financial markets and, ultimately, how the world works. 🌎

While this may seem overwhelming, don’t worry, I’m going to explain this to you in simple and easy-to-understand terminology… as we always do here at Web3 Academy!

…and by the way, I’m writing about Macro because the PRO community voted for it (sorry @crypadvisor.eth, the only one to vote no 🤷).

PRO members, join the discord to have a say! 💬

In this first part of our masterclass, we'll break down the essential macro components - inflation, global liquidity (M2), interest rates, and unemployment - and explain why they matter to you as a web3 DOer. 👩‍💼👨‍💼

In the second part of the masterclass, I’m going to discuss the current macro environment and where things are likely to go in the future. Of course, we will also dive into how that will impact our beloved web3 technologies.

Before we get into it, It’s important to understand one more thing. Macro is a very complex topic with unlimited variables that can impact it and its components. 🧠

This is why you will see some very smart people with completely opposing views. For example, some will say that inflation is here to stay and others will say it’s dead.

How is this possible? Well, depending on how you evaluate the world, you may come up with a different hypothesis.

What I’m going to do is give you the foundational knowledge to understand what this all means, so you can make more informed decisions based on the analysis you read from other macro insiders. 🎯

My recommendation is to consume multiple takes and then make your own opinions and hypotheses from that. In part 2, I will, of course, share my opinion with you, too.

Ok, let’s start at a high level on the components of macro.

A Bird’s Eye View Of Macro 🦅

Central banks are the drivers of our economies. They control the cost of capital and the flow of money.

While most countries have a central bank, the United States of America’s is the most important currently. Why? 🤔

Because they control the reserve currency of the world, USD. More than 80% of all transactions globally occur in USD and most trade is priced in USD. So what the Federal Reserve (aka The Fed = Central Bank of USA) does, really matters to the entire world 🌎

If you want to understand macro, you need to understand the Fed, regardless of where you are in the world.

The Fed has a dual mandate (aka the Fed exists for 2 reasons):