Predictive Strength
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Predictive Strength
Overall Level of Securities in Bank Credit (Source: FED)
Bank credit expansion signals increased liquidity in traditional finance, enabling institutional players to allocate risk capital to crypto markets. This creates reflexive demand cycles - as seen during 2021's bull run when loose monetary policy fueled VC investments in blockchain infrastructure. Conversely, credit contraction forces deleveraging from regulated entities holding crypto assets.
Bank credit growth correlates with economic confidence, creating a "wealth effect" that spills into speculative assets. The 10-year/3-month Treasury spread analysis shows crypto acts as a high-beta play on macro sentiment - credit expansion phases align with compressed risk premia and crypto outperformance.
The "Overall Level Bank Credit" data is sourced from regulatory reports submitted by major U.S. financial institutions, including FR Y-6/Y-7 filings from bank holding companies and FR Y-14M reports detailing credit card/mortgage portfolios. These reports provide granular transaction-level and portfolio data, which are aggregated and standardized by Federal Reserve agencies. The index is normalized relative to historical averages, with values above 1 indicating higher-than-average credit levels and below 1 indicating lower levels.
To understand a predictive factors predictive power, we create a simple long/short strategy and simulate its past performance (with daily rebalancing):
The strategy is rebalanced daily, on a continuous basis. There are 0.5% transaction costs applied on each position adjustment.
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Predictive Strength
Predictive Strength
Predictive Strength