Bitcoin price poised for ‘orthogonal’ shakeout as China softens stance
The price of bitcoin has risen roughly 50 percent since the start of the year, despite the US government signaling a tougher regulatory stance on cryptocurrency.
Bitcoin briefly hit $25,000 this week, after starting 2023 below $16,600, taking it back to levels not seen since last August. Other cryptocurrencies have also seen a significant increase in recent days, adding more than $100 billion to the total market.
The price rise surprised some analysts, as it went against an established narrative among several financial experts that bitcoin’s market movements are largely driven by external macroeconomic and monetary news.
Some credited the price rise to reports in China that the country plans to soften its stance on crypto, after launching a major crackdown on the industry in 2021.
However, a new study suggests that neither news from China nor the US will have a significant impact on bitcoin’s price.
A report by the New York Federal Reserve found that bitcoin’s reaction to this and other macroeconomic or monetary news is likely to be “orthogonal” movement.
“Unlike other US asset classes, bitcoin is orthogonal to monetary and macroeconomic news,” the report said.
The study used an extensive intraday data set to analyze the effects of the news on the price of bitcoin, which the authors initially assumed was an “intrinsic value” asset where the current price depends on the discounted value of the future price.
“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,” the authors wrote.
Crypto market correlation with traditional markets was often cited by analysts in 2022 as a way to explain or predict bitcoin’s price movements, although the study questions such methods of analysis.
Simon Peters, a crypto market analyst at online trading platform eToro, said the findings could support earlier theories that bitcoin serves more as a form of “digital gold” and a safe haven in times of greater economic turmoil.
“The report contrasts with most of the mainstream thinking around bitcoin at the moment, where the markets actually seemed to correlate more strongly last year – although this year this correlation has been less clear,” Peters said.
“However, if bitcoin does indeed move differently to macroeconomic events, that could provide significant support for using it as a hedge against other markets – similar to gold.”
