Bitcoin (Magic Internet Money!) is again proving to be less volatile than stocks
After the smattering of US central bankers who set the Federal Reserve’s interest rate benchmark met last week, the smattering issued a press release outlining their new monetary policy (increase interest rates by 75 basis points). Then Powell, leading the smattering, addresses a press conference and gives introductory remarks before answering questions from financial journalists.
In our modern age of information overload, the market tends to react to the press release and then to the initial statement and then to the answers to the financial journalists’ questions.
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So imagine my annoyance during last Wednesday’s November edition of “Fed Policy Makers Change Rates and Then Powell Talks About It.”
Just look at the S&P 500 (which tracks the performance of most of the US stock market) and how it behaved during the afternoon’s proceedings: It went up with the press release, down with the opening statement and then down a bit more during questions from the press.
Again: Imagine my irritation. (Just imagine a guy shaking his fist at a computer screen because of market reactions to another guy saying something.)
This is my assessment of why this happened. The market was looking for any sign of the “decline” in rate hikes Powell hinted at a few rate hikes ago, and it found it in the press release. But as Powell began to speak, the markets interpreted what they had just heard, particularly because of this comment:
“At some point, as I have said in the last two press conferences, it will be appropriate to slow the pace of the increase as we approach the level of interest rates that will be sufficiently restrictive to bring inflation down to our 2% target. . There is considerable uncertainty around this interest rate level. Nevertheless, we still have some way to go, and incoming data since our last meeting suggests that the final rate level will be higher than previously expected.”
He was later asked about “lag effects” (aka the time between the Fed’s rate hikes and its actual economic impact) and Powell dropped the bombshell that it was too early to talk about a pause in rate hikes. The S&P 500 spiked.
Also, the S&P 500 got whipped around even more than bitcoin (BTC) – you know, the notoriously volatile Magic Internet Money. The Fed’s press release came out at 2:00 PM ET. The S&P 500 gained 0.7% about half an hour later, but it ended the day down 2.3%. Meanwhile, bitcoin topped a post-Fed press release gain of 1.3% and ended with a 1.5% loss.
Volatility has a specific definition, and two weeks is hardly statistically significant, but this marks the second week in a row that bitcoin’s relative stability showed the stock market who The Adult in the room was.
Read more: Can you believe it? Bitcoin looks stable — green, steady — as major tech stocks fall apart
Bitcoin is not volatile anymore, is it high time we throw out all our models?
I’ve waited a long time to write this and actually mean it (from a marketing perspective, at least), but honey badgers really don’t care. The honey badger is a term of endearment that bitcoiners use to describe bitcoin.
The past two weeks have seen the Fed signal a willingness to continue raising interest rates to bring down inflation, a hot jobs report and general macroeconomic uncertainty. That pushed both the S&P 500 and the Nasdaq-100 (another US stock market proxy) down. Meanwhile, bitcoin rose.
I know this could easily change overnight, but for now it looks like bitcoin is shrugging off the uncertainty.
My colleague Glenn Williams Jr. said it best:
“The world is turning, but the asset often criticized for its volatility has not – or certainly not as much as leading stock indices this year.”
My conclusion is one of two things: Either bitcoin has now truly arrived as a macro asset, or its value is meaningless again since dogecoin (DOGE), a cryptocurrency that was literally created as a joke, doubled in price in October.
