The New York Federal Reserve has released a report on the impact of macroeconomic news on the price of cryptocurrencies, specifically Bitcoin.
The 31-page New York Fed report #1052 (titled “The Bitcoin-Macro Disconnect“) was co-authored by Dr. Gianluca Benigno, the head of International Studies within the Monetary Policy Research Division of the New York Fed, and Carlo Rosa, a former Senior Economist at the New York Fed who is currently a director at Barclays.
The authors of the report viewed cryptocurrencies as assets whose value is linked to the estimated future prices. They expected to find that factors that influence current and future interest rates would have an impact on the value of cryptocurrencies.
The report concentrated on analyzing the behavior of Bitcoin, the largest cryptocurrency, in response to various macroeconomic news announcements. To do this, they utilized “a novel and comprehensive intraday dataset” that allows them to measure the effects of news releases.
The study took into account many macroeconomic news categories, such as the real economy, inflation, forward-looking indicators, and monetary policy news. They discovered, however, that except for the Consumer Price Index (CPI), Bitcoin was immune to all macroeconomic news considered. Traditional assets, on the other hand, such as gold, silver, and the S&P 500, reacted strongly to macroeconomic news.
Furthermore, the analysis discovered that Bitcoin’s reaction to monetary policy news was quite mysterious. Despite being perceived as an asset with no inherent worth that is predicated on predicted future values, the analysis found that Bitcoin was unaffected by unexpected changes in the short-term rate, and its reaction to policy announcements about the future route was inconsistent.
The report concluded as follows:
“Our empirical study shows that Bitcoin is insensitive to both monetary and macroeconomic news. The fact that Bitcoin does not react to monetary news in particular is perplexing, since it calls into question the significance of discount rates in pricing Bitcoin. However, given the small sample size, additional information is needed to examine the divergence between Bitcoin and macroeconomic fundamentals.“
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