Federal Reserve Bank: “Bitcoin shares most features of a store of value like gold”

• The Fed provided a model that shows Bitcoin as an asset with no intrinsic value, where today’s price depends on the discounted value of the future price.
• The Fed concluded that Bitcoin is unresponsive to both monetary and macroeconomic news.

A recent study conducted by the Federal Reserve Bank of New York concluded that Bitcoin barely correlates with macroeconomic factors compared to other asset classes such as precious metals and the S&P 500. Nevertheless, the report highlighted that Bitcoin cannot be used as a form of payment on a large scale due to the high volatility.

As such, Bitcoin and other crypto assets compare Gold and other precious metals instead of US dollars.

BREAKING:🇺🇸 Federal Reserve Bank of New York: “#Bitcoin shares most of the features of a store of value, such as gold” 🧐🧐🧐🚀🚀🚀

— Crypto News Flash (@CryptoNewsFlas3) 9 February 2023

Thereby repeating what Fed chairman Jerome Powell said back in 2021 crypto assets are too volatile to be used as a means of payment. The concluded with the report.

The main result is that Bitcoin is orthogonal to all macro news that we consider except the CPI. This is in stark contrast to the other assets we use for comparison (gold, silver, S&P 500 and various bilateral exchange rates). All other traditional assets react to macroeconomic news with an economically large and significant coefficient,

Take a closer look at the Fed report on Bitcoin price action on macroeconomic news

The report formulated a simple speculative asset model to determine future probabilities associated with 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.

In addition, the speculative probability model indicated that monetary news about the future policy has greater effects on the Bitcoin price than those about the current target rate. According to the report, the Bitcoin price reacts with increased volatility before and after the FOMC statements affecting the country’s interest rates.

For example, an unexpected increase in US inflation can lead to higher input costs for exports, which then makes a nation’s exports less competitive in global markets. Consequently, the country’s fiat currency may weaken while the Bitcoin price increases in value.

But if the Federal Reserve raises short-term interest rates to curb inflationary pressures, which in turn could mean an appreciation of the dollar, the Bitcoin price could end up in a mini-rally.

The Fed compared the Bitcoin price reaction in the 30-minute and 1-hour time frames to those of leading fiat currencies such as JPY, EUR, USD and GBP during macroeconomic news events that were seen as high impact.

Interestingly, the Fed concluded that Bitcoin is unresponsive to both monetary and macroeconomic news. However, the Fed noted that more studies are needed to find out the link between Bitcoin and the macroeconomic aspects.

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The report from the Fed is a clear testimony that Bitcoin is here to stay and the asset that fends off gold as an asset class is imminent. In addition, Bitcoin has been adopted by two countries, El Salvador and the Central African Republic, as legal tender.

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