• The Federal Reserve Bank of New York recently conducted a study on Bitcoin, concluding that it shares most features of a store of value such as gold.
• However, the report highlighted that Bitcoin cannot be used as a form of payment at scale due to its high volatility.
• The report further 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 on Bitcoin
The Federal Reserve Bank of New York recently conducted a study on Bitcoin and concluded that it shares most features of a store of value such as gold. The report further highlighted that Bitcoin cannot be used as a form of payment at scale due to its high volatility.
Impact of Monetary News
The report indicated that monetary news about the future path of policy has larger effects on Bitcoin price than those about the current target rate. 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 currency could depreciate against other currencies and affect the prices for goods and services denominated in it; thus making imported products more expensive for domestic consumers and impacting consumer sentiment overall.
Speculative Probability Model
To determine the future probabilities related to bitcoin value, the Fed formulated a simple speculative asset model. Several hypotheses were derived from this probability model including that monetary news negatively affects the value of the speculative asset through an interest-rate channel.
Conclusion
The main result drawn from this research is that Bitcoin is unresponsive to both monetary and macroeconomic news apart from Consumer Price Index (CPI). Additionally, traditional assets respond to macroeconomic news with an economically large and significant coefficient compared with bitcoin where no correlation was observed between them.
Final Thoughts
It is evident from this study by Federal Reserve Bank Of New York that although Bitcoin shares some features with other stores-of-value like gold, its use as a form or payment remains limited due to its high volatility and lack response to both monetary and macroeconomic news except CPI.
