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Bitcoin Fundamental Analysis Theory

时间：2024-08-11 19:16
来源：Refeshop

Fundamental Analysis

I. Basic Theory

Fundamental analysis, when valuing one country's currency against another's, involves studying macroeconomic indicators, asset markets, and political factors. Macroeconomic indicators include figures such as economic growth rates, calculated from factors like Gross Domestic Product (GDP), interest rates, inflation rates, unemployment rates, money supply, foreign exchange reserves, and productivity. Asset markets encompass stocks, bonds, and real estate. Political factors influence the trust in a country's government, social stability climate, and confidence levels.

Sometimes, governments intervene in currency markets to prevent significant deviations from undesirable levels. Currency market interventions are executed by central banks and usually have significant but temporary effects on the forex market. Central banks can either unilaterally buy Bitcoin Fundamental Analysis Theory

ll their own currency against another country's currency or conduct joint interventions with other central banks for more significant effects. Alternatively, some countries manage to influence currency values merely by hinting at or threatening intervention.

Purchasing Power Parity (PPP)
The Purchasing Power Parity theory states that exchange rates are determined by the relative prices of the same basket of goods. Changes in inflation rates should be offset by equal but opposite changes in exchange rates. Using the classic hamburger example, if a hamburger costs $2.00 in the US and £1.00 in the UK, the PPP theory suggests the exchange rate should be 2 USD per 1 GBP. If the prevailing market rate is 1.7 USD per GBP, then the pound is considered undervalued, and the dollar overvalued. The theory assumes these currencies will eventually move towards the 2:1 ratio.

The main weakness of the PPP theory is its assumption that goods can be freely traded, disregarding transaction costs like tariffs, quotas, and taxes. Another weakness is that it only applies to goods and ignores services, which can have significant value disparities. Additionally, several factors other than inflation and interest rate differentials affect exchange rates, such as economic data releases/reports, asset markets, and political developments. Before the 1990s, the PPP theory lacked empirical evidence to prove its effectiveness. After the 90s, the theory seemed to apply only to long periods (3-5 years), during which prices eventually converge towards parity.

Interest Rate Parity (IRP)
Interest Rate Parity stipulates that the appreciation (depreciation) of one currency against another must be offset by changes in interest rate differentials. If US interest rates are higher than Japanese rates, the dollar will depreciate against the yen to the extent necessary to prevent risk-free arbitrage. Future exchange rates are reflected in the forward rates set today. In our example, the dollar's forward rate is seen as at a discount because fewer yen can be purchased with the forward rate than with the spot rate. The yen is considered at a premium.

Since the 1990s, there's no evidence that Interest Rate Parity remains valid. Contrary to this theory, currencies with high interest rates often appreciate rather than depreciate due to forward suppression of inflation and their status as high-yield currencies.

Balance of Payments Model
This model posits that foreign exchange rates must be at their equilibrium level - the rate that produces a stable current account balance. Countries with trade deficits will experience a reduction in their foreign exchange reserves, eventually leading to currency depreciation. A cheaper currency makes the country's goods more price-competitive in international markets while making imports more expensive. After an adjustment period, imports decrease, exports increase, stabilizing the trade balance and currency towards equilibrium.

Like the PPP theory, the Balance of Payments model focuses primarily on trade in goods and services, neglecting the increasingly important role of global capital flows. In other words, money chases not only goods and services but also financial assets like stocks and bonds in a broader sense. These capital flows enter the capital account of the balance of payments, potentially balancing deficits in the current account. The increase in capital flows has given rise to the Asset Market Model.

Asset Market Model (Currently the Best Model)
The rapid expansion of financial asset (stocks and bonds) trading has led analysts and traders to view currencies from a new perspective. Economic variables such as growth rates, inflation rates, and productivity are no longer the only driving factors of currency movements. The share of foreign exchange transactions originating from cross-border financial asset trades has dwarfed currency transactions generated by trade in goods and services.

The asset market approach views currencies as asset prices traded in efficient financial markets. Consequently, currencies increasingly demonstrate close correlations with asset markets, particularly stocks.

The Dollar and US Asset Markets
In the summer of 1999, many authorities predicted the dollar would depreciate against the euro due to the growing US current account deficit and overheating on Wall Street. This view was based on the theory that non-US investors would withdraw funds from US stock and bond markets and invest in markets with healthier economic conditions, significantly depressing the dollar's value. Such fears have persisted since the early 1980s when the US current account rapidly grew to a historic high of 3.5% of GDP.

As in the 1980s, foreign investors' appetite for US assets remains voracious. Unlike the 1980s, however, the fiscal deficit disappeared in the 1990s. While the growth in foreign holdings of US bonds may have slowed, the massive influx of funds into US stocks has been sufficient to offset this trend. In the event of a US bubble burst, non-US investors would likely opt for safer US Treasury bills rather than Eurozone or UK stocks, which would likely be severely impacted by such an event. This occurred during the November 1998 crisis and the December 1996 stock panic triggered by Fed Chairman Greenspan's offhand remarks. In the former instance, net foreign Treasury bill purchases nearly doubled to $44 billion, while in the latter, this indicator increased more than tenfold to $25 billion.

Over the past two decades, the asset market approach has replaced the balance of payments approach in estimating dollar behavior. Although improvements in Eurozone economic fundamentals will help this young currency regain ground, fundamentals alone are unlikely to support this recovery. The European Central Bank's credibility remains an issue; to date, the ECB's credibility has been inversely proportional to the frequent verbal support for the euro. The stability of governments in the Eurozone's big three (Germany, France, and Italy) and the lurking risks of sensitive issues such as the expansion of the European Monetary Union are also seen as potential obstacles to the single currency.

Currently, the dollar's stability can be attributed to the following factors: zero-inflation growth, the safe-haven nature of US asset markets, and the aforementioned euro risks.

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