Bitcoin is immune to all macroeconomic news except inflation. This is in contrast to other traditional assets such as gold, silver, S&P 500 stocks, and currencies (exchange rates), which are sensitive to macroeconomic news.
The US Federal Reserve Bank of New York on Wednesday unveiled a comprehensive 31-page report titled "The Bitcoin – Macro Disconnect," which analysed the effect of macroeconomic news on Bitcoin and other assets.
Below are the highlights:
Cryptocurrency market cap hits $2.5 tn, Bitcoin crosses the $1 tn mark
According to the report, the market capitalisation of cryptocurrencies has rapidly expanded in recent years, reaching $2.5 trillion, with Bitcoin crossing the $1 trillion mark.
The paper aimed to study the drivers of cryptocurrency prices and their properties compared to traditional assets.
High-frequency data reveals Bitcoin immune to all macroeconomic news except inflation
The study was conducted with a high-frequency perspective and Bitcoin was chosen as the representative cryptocurrency.
The researchers collected macroeconomic news, such as news about the inflation, and looked at forward-looking indicators, and studied the response of Bitcoin to these factors.
The advantage of using high-frequency data is that it allowed the researchers to observe the response of asset prices to news in a short 30-minute window, which is the closest thing to a natural experiment in empirical finance.
Bitcoin is unresponsive to monetary policy news, unexpected changes in short-term rates
Despite the researchers' expectation that Bitcoin should respond to monetary policy news and to changes in current and future real interest rates, the study found that Bitcoin was unresponsive to unexpected changes in the short-term rate, and its reaction to news about the future path of monetary policy was not robust.
The study's contribution lies in the use of intraday data
The researchers believe that their study's contribution lies in the use of intraday data to identify the effects of monetary and macroeconomic news on Bitcoin.
While there have been numerous studies on the risk and return characteristics of cryptocurrencies and the response of US assets to macroeconomic news, this study is unique in its high-frequency approach, which provides a more precise estimate of the impact of news.
“In our empirical analysis, we find that Bitcoin is unresponsive to both monetary and macroeconomic news. In particular, the result that Bitcoin does not react to monetary news is puzzling as it casts some doubts on the role of discount rates in pricing Bitcoin,” the study noted.
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