## GDP: How the economic indicator shapes financial decisions

On financial markets, professionals and investors constantly monitor one critical indicator – the gross domestic product. Why? Because GDP is like a compass that indicates the direction of the economy, and its movements influence investors' decisions regarding stocks, bonds, and cryptocurrencies.

## How GDP Determines Market Sentiment

When the economy generates a higher GDP, it means that businesses are earning more revenue, consumers have more money to spend, and the market feels optimistic. During such times, investors direct their capital towards various assets – from traditional securities to digital currencies. The opposite situation – a decline in GDP – initiates a wave of caution. Investors may sell off their positions, leading to a drop in the prices of cryptocurrencies and stocks.

## What is GDP composed of

Gross domestic product represents the total value of all services and products created within a country's borders over a specific period. This includes practically everything – production, services, healthcare, education, transportation, and management activities. In other words, every time a citizen or company makes a payment, it reflects in economic activity and thus in GDP.

## Methodologies for Measuring GDP

Economists have three main approaches:

**Production method:** The value of all goods and services produced in all sectors of the economy is collected.

**Income method:** The total of all generated incomes is accumulated – salaries, corporate profits, taxes, and other forms of income.

**Expenditure method:** It sums up the final consumption of households, business investments, government spending, plus exports minus imports.

Every methodology reaches the same results, which confirms the reliability of the indicator.

## Why Investors Pay Attention to GDP

For participants in financial markets, GDP serves as a signal for economic health. A rising GDP typically indicates business expansion, prompting investors to increase their portfolios. Conversely, a declining GDP may signal recession, unemployment, or economic stagnation, which generate uncertainty and provide.

## GDP and Cryptocurrencies

Although cryptocurrencies operate on blockchain technology, independent of the traditional economy, the correlation is evident. When GDP rises, investor sentiment is positive, and capital flows into digital assets as well. During a decline in GDP, even crypto assets experience pressure from decreasing demand.

## Conclusion

GDP is far more than just an economic indicator – it is a barometer that determines the movements of global financial markets. It influences whether governments will adopt expansionary or restrictive policies, whether companies will invest in growth, and whether investors will have the confidence to develop their positions. Understanding GDP is essential for anyone who wishes to navigate the modern financial landscape and forecast potential trends in stocks, bonds, and cryptocurrencies.