• The Federal Reserve Bank of New York recently conducted a study on Bitcoin, concluding that it is unresponsive to both monetary and macroeconomic news.
• Bitcoin more closely resembles gold and other precious metals as a store of value than the United States dollar due to its high volatility.
• The study formulated a simple speculative asset model to determine future probabilities related to Bitcoin value, which indicated that monetary news about the future path of policy has larger effects on Bitcoin price than those about the current target rate.
Federal Reserve Bank Study Finds Bitcoin Shares Features with Gold
The Federal Reserve Bank of New York recently conducted a study on Bitcoin, concluding that it shares many features with gold but is unresponsive to both monetary and macroeconomic news. This suggests that Bitcoin is better used as a store of value similar to gold and other precious metals than as payment due to its high volatility.
Speculative Asset Model Used To Analyze Future Probabilities
In order to analyze future probabilities related to Bitcoin value, the study formulated a simple speculative asset model. The results suggested that monetary news about the future path of policy has larger effects on Bitcoin price than those about the current target rate. For example, an unexpected increase in US inflation may lead to higher input costs for exports, making them less competitive in global markets and potentially affecting the price action of Bitcoin.
Bitcoin Price Reacts With Increased Volatility Before & After FOMC Statements
The report also found that before and after Federal Open Market Committee (FOMC) statements touching on interest rates, there was increased volatility in the price action of Bitcoin. This highlights how important economic announcements can be for understanding how changes in macroeconomic variables affect crypto assets like bitcoin in particular.
Conclusion: Crypto Assets Cannot Be Used As Payment At Scale
Overall, this report showed that crypto assets cannot be used as payment at scale due their inherently high volatility compared with traditional assets such as gold or stocks. Although these findings are not new or surprising given previous commentary from Federal Reserve Chair Jerome Powell back in 2021, they do provide further evidence for why crypto assets should be seen primarily as stores of value rather than currencies for day-to-day transactions at present.
Key Takeaways From Fed’s Report On Cryptocurrency
• Crypto assets cannot be used as forms of payment at scale due to their high volatility when compared with traditional assets like gold or stocks;
• Monetary news about the future path of policy has larger effects on Bitcoin price than those about the current target rate;
• Before and after FOMC statements touching on interest rates there is increased volatility in cryptocurrency prices; • Fed Chair Jerome Powell previously noted back in 2021 that crypto assets are too volatile to be used as currency for day-to-day transactions at present