A recent study conducted by the Federal Reserve Bank of New York concluded that Bitcoin hardly correlates to macroeconomic factors in comparison to other asset classes like precious metals, and the S&P 500. Nonetheless, the report highlighted that Bitcoin cannot be used as a form of payment at scale due to its high volatility.
As such, Bitcoin and other crypto assets compare to Gold and other precious metals rather than the United States dollar.
Thereby reiterating what Fed Chair Jerome Powell said back in 2021 that crypto assets are too volatile to be used as a form of payment. The report concluded.
Closer Look at the Fed Report on Bitcoin Price Action on Macroeconomic News
The report formulated a simple speculative asset model to determine the future probabilities related to Bitcoin value. According to the probability model, several hypotheses were derived including that monetary news negatively affects the value of the speculative asset through an interest-rate channel
Additionally, the speculative probability model indicated that monetary news about the future path of policy has larger effects on Bitcoin price than those about the current target rate. According to the report, Bitcoin price reacts with increased volatility before and after the FOMC statements that touch on the country’s interest rates.
For instance, an unexpected increase in US inflation may lead to higher input costs for exports, which then makes a nation’s exports less competitive in the global markets. Consequently, the country’s fiat currency may depreciate while Bitcoin price gains in value.
However, if the Federal Reserve raises short-term interest rates to curb inflationary pressures, which in turn may imply an appreciation of the dollar, the Bitcoin price could end up in a mini rally.
The Fed compared Bitcoin price reaction in the 30 min and 1-hour time frame to those of leading fiat currencies like JPY, EUR, USD, and GBP during macroeconomic news events regarded as high impact.
Interestingly, the Fed concluded that Bitcoin is unresponsive to both monetary and macroeconomic news. However, the Fed noted that more study is needed to find out the disconnect between Bitcoin and the macroeconomic aspects.
This article was originally published by crypto-news-flash.