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Guide: Microeconomics v Macroeconomics

Microeconomics v Macroeconomics: What Is The Difference?

The key to successful investing is conducting research into the market and making predictions about price. Researchers use various sources to gather as much information as possible. Two key areas that researchers may look at are microeconomics and macroeconomics. So what are they  and what is the difference between the two?

What is microeconomics?

Microeconomics is a branch of economics that looks at the decisions of individuals and businesses and how these decisions affect the price of an asset. In particular, crypto researchers will look at the decisions of other investors and those involved with the crypto space. 

Microeconomics is a bottom-up approach that focuses on the supply and demand of an asset to determine price levels.The process typically involves looking at the behaviour of individuals and companies through data and charts. 

For example, a researcher may look into how many investors have purchased an asset over the last month and compare this to how many have sold the same asset. The researcher is looking at individual decisions. 

Microeconomics includes four key principles:

  • Demand, supply and equilibrium
  • Production theory 
  • Costs of production (in regards the crypto this could including the costs of mining coins and running services)
  • Labour economics

What is macroeconomics?

Macroeconomics looks at the economy through a wider lens. This means studying the decisions made by a country or government that may affect the price of an asset. A good example of macroeconomics are crypto regulations that may be placed on coins within a country. 

Macroeconomic research analyses the decisions of entire countries or industries, rather than individual or business decisions. You can think of macroeconomics as a top-down approach. Researchers might start by looking at global news to find any events that could affect the crypto market. 

Microeconomics v macroeconomics

Microeconomics and macroeconomics are often used together to guide investment decisions. Both enable researchers to make price predictions and understand the current market. Looking at both microeconomics and macroeconomics is a great way to understand potential price movement as well as the current state of the market. This can help to guide investment decisions. 

The main difference is that microeconomics takes a bottom-up approach whereas macroeconomics takes a top-down approach. Microeconomics is focused on smaller-scale decisions whereas macroeconomics looks at the wider economy and its effect on the crypto market.Researchers typically start with macroeconomics and then narrow down to microeconomics. 

Beginner investors may want to begin with microeconomic data. This is because macroeconomic data can be confusing for even the more experienced researchers to interpret. There are a number of different macroeconomic forecasts and choosing the most accurate one can be a challenge.On the other hand, microeconomic data is much easier to understand, which decreases the risk of misinterpretation and subsequent investment error.

Predictions always lose accuracy the further away they are (you’ll have way more confidence in predicting the price of Bitcoin in 30 min than in 30 days). This in turn is what makes microeconomics more attractive in crypto, due to the volatility and short term nature of the market. The smaller-scale immediate decisions have a direct impact on prices, which is why they are the best starting point. Crypto investors primarily care about the microeconomics for the clear correlation to price – which is exacerbated even more in illiquid markets such as NFTs.

The best place to start is by looking at a tokens distribution, circulating supply, market cap and core value propositions. Researchers may then conduct a further deep dive using on-chain data to identify investor behaviour and sentiment both historically and currently.

 

Understanding the ins and outs of economics is no easy feat! That’s why our team of researchers work around the clock to deliver industry-leading insight to our Cryptonary Pro members. Not only does this save them time but it reduces the chances of misinterpreting information. 

Want in? You can sign up to Cryptonary Pro today and take advantage of industry leading insight at a retail price. 

 

Disclaimer: We do not give any financial advice. Instead, our guides and tutorials are created to provide you with information about the crypto space. The decisions that you make are completely up to you and remember that your capital is at risk when investing in crypto. 





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