NY Fed Report: Bitcoin Unaffected by Monetary and Macroeconomic News
Quick Summary
Bitcoin, the flagship cryptocurrency, is subject to market forces similar to traditional asset classes. Factors such as news about the real economy, inflation, and monetary policy can influence its price. The Federal Reserve Bank of New York has published a report analyzing the impact of macroeconomic factors on the price of Bitcoin. It found that Bitcoin has exhibited higher volatility than other assets, with significant price swings occurring in short periods. The report also noted that market manipulation had been observed in other cryptocurrencies, such as Ethereum. While Bitcoin may not be directly correlated with all traditional asset classes, it is still subject to many of the same market forces.
Full Story – ‘Bitcoin Is Orthogonal to Monetary and Macroeconomic News’ Claims NY Fed Report
Bitcoin, cryptocurrency’s flagship coin has been a grey area of both monetary and macroeconomic factors. Different regulators, such as the New York Federal Reserve, deep-dive into this relationship and the after-effects the asset class may or may not possess.
Various factors, including monetary and macroeconomic news, influence Bitcoin’s price. While it is true that Bitcoin is a relatively new and distinct asset class, it is still subject to many of the same market forces as traditional asset classes.
For example, when there is news that suggests inflation is rising or the value of the U.S. dollar is falling, this can cause investors to turn to Bitcoin as a potential hedge against inflation and a store of value. However, there have been a few questions asked on this topic.
Conversely, positive economic news, such as solid job growth or a rising stock market, can lead investors to shift away from Bitcoin and towards more traditional assets. Furthermore, Bitcoin has been known to experience significant price swings in response to regulatory announcements or changes in government policy. For example, when China banned cryptocurrency trading in 2017, the price of Bitcoin dropped significantly.
Understanding the Relationship
While Bitcoin may not be directly correlated with all traditional asset classes, it is still subject to many of the same market forces, including financial and macroeconomic news. To shed more light on the relationship, the Federal Reserve Bank of New York published a report analyzing the impact of macroeconomic factors on the price of Bitcoin.
The FED report titled “The Bitcoin–Macro Disconnect” discussed the disparity between the behavior of Bitcoin and the macroeconomic factors that typically affect traditional asset classes. The report notes that Bitcoin has shown little correlation with measures of economic activity such as inflation, interest rates, and economic growth. Additionally, Bitcoin has exhibited higher volatility than other assets, with significant price swings occurring in short periods.
The cumulative crypto market capitalization hit $2.50 trillion in 2021, with Bitcoin’s market value reaching $1 trillion. Fast forward, BTC suffered a significant correction last year. Nonetheless, different macro factors influenced BTC’s past price action. To assess this, the authors analyzed specific macro factors affecting the price. In other words, they considered BTC’s price action when it appeared to be directly related to a macro factor, not some crypto-specific factor like the collapse of FTX.
Crypto and Market Manipulation
Therefore, the report divided these macro factors into three categories: news about the real economy and unemployment statistics. News about inflation, such as the Consumer Price Index or CPI, and information about monetary policy, such as a change in interest rates or the Fed’s intention to change rates in the future.
The authors specified that they looked at how BTC’s price responded to these macro factors between 2017 and 2022. This is because BTC reached a “more mature stage” starting in 2017. This seems to reference the launch of Bitcoin Futures on the Chicago Mercantile Exchange used by institutions in late 2017.
Many asserted that this launch of the Bitcoin Futures on the CME is when institutions started manipulating the crypto market. Market manipulation has since extended to other cryptos, namely Ethereum (ETH), which is now also on the CME.
Macro Factors Defined
The report then unpacks how the authors modeled BTC as a speculative asset with no intrinsic value. It states that BTC price is determined by…
