US Federal Reserve on Bitcoin’s Response To Monetary News

• US Federal Reserve reports a disconnect between Bitcoin and macroeconomic fundamentals.
• Sensitivity of Bitcoin, the US Dollar, metals, and other stock prices to macroeconomy news is studied. 

On Wednesday, US Federal Reserve Bank of New York released a 31-page report titled “The Bitcoin – Macro Disconnect”, compiling the findings of the impact of macroeconomic news on Bitcoin and other asset classes. Significantly, the findings of the analysis pushed the United State’s central bank into a perplexed state. 

Through the report, the US Federal Reserve reported:

“The key result is that, unlike other U.S. asset classes, Bitcoin is orthogonal to monetary and macroeconomic news. This disconnect is puzzling as unexpected changes in discount rates should, in principle, affect the price of Bitcoin even when interpreting Bitcoin as a purely speculative asset.”

Federal Reserve’s Bitcoin Case Study

Markedly, the Federal Reserve took into account different news such as inflation, the real economy, monetary policy, and regulation announcements for the investigation. Notably, Bitcoin, the US Dollar, US stock prices, and metals such as gold as the subjects of the analytical case study. 

For the investigation, the Fed analysts considered Bitcoin as a “purely speculative asset” with no intrinsic value. Numerous hypotheses and estimations of this statistical analysis indicated Bitcoin’s insignificant response to the US macroeconomic news. While the other asset classes exhibited significant responses.

However, Fed highlighted:

“Monetary news about the future path of policy have larger effects than those about the current target rate.”

To assess the disconnect between Bitcoin and macroeconomic fundamentals, the US Federal Reserve expressed its need for more evidence. 

Many prominent off-chain regulators criticize Bitcoin as the “bubble of a generation” which is a hype-driven asset. Despite this, Bitcoin adoption rates are being led to a positive growth trajectory. 

The start of 2023 has been an optimistic start to the largest crypto and signals a recovery phase. Especially, there is an anticipation of a bullish rally similar to that of 2019. Notably, famous crypto analyst, Lark Davis forecasted that if a daily golden cross trend similar to 2019 is repeated, Bitcoin’s bull run will be confirmed. Also, the Federal Reserve’s green signal to the launch of a US CBDC is also anticipated.