Study shows that Bitcoin is not affected by most macroeconomic news, apart from inflation
Researchers said the finding that Bitcoin does not respond to monetary news is puzzling as it casts some doubt on the role of discount rates in the pricing of Bitcoin.
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 in New York on Wednesday unveiled a comprehensive 31-page report titled “The Bitcoin – Macro Disconnect,” which analyzed the effect of macroeconomic news on Bitcoin and other assets.
Below are the highlights:
Cryptocurrency market cap reaches $2.5tn, Bitcoin crosses $1tn mark
According to the report, the market value of cryptocurrencies has expanded rapidly 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 characteristics 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 inflation, and looked at forward-looking indicators, and studied Bitcoin’s response 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 does not react to monetary policy news, unexpected changes in short-term interest rates
Despite the researchers’ expectation that Bitcoin would respond to monetary policy news and changes in current and future real interest rates, the study found that Bitcoin does not respond to unexpected changes in the short-term interest 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 the study’s contribution lies in the use of intraday data to identify the effects of monetary and macroeconomic news on Bitcoin.
Although there have been many studies on the risk-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 news impact.
“In our empirical analysis, we find that Bitcoin is unresponsive to both monetary and macroeconomic news. In particular, the finding that Bitcoin is unresponsive to monetary news is puzzling, as it casts doubt on the role of discount rates in the pricing of Bitcoin,” the study noted.
