"Bitcoin is a store of value" - FED NY

The Fed puts bitcoin and gold in the same bag. This statement is always good to take when some ECB governors openly plead for its “ban”…

Bitcoin is decorrelated from the macroeconomy

New York FED researcher Gianluca Benigno says the “Bitcoin is a store of value just like gold”. “The number of units is finite and it can be used to hold and transfer value. »

Incidentally, Fed Chairman Jerome Powell had already said the same thing in 2021: “It is essentially a substitute [le bitcoin] to gold rather than to the dollar”. St. Louis Fed Governor Jim Bullard had said the same thing before.

This new confession is in the paper of research : “The Bitcoin-Macro Disconnect” in which the FED analyzes the influence of macroeconomic factors on Bitcoin.

Unsurprisingly, Bitcoin does not show a clear correlation with the economy:

“The main finding is that, unlike other asset classes, bitcoin has not reacted significantly to news regarding US macroeconomic and monetary policy. This disconnect is puzzling, as unexpected changes in policy rates should, in principle, affect the price of bitcoin. »

The New York Fed assumed that “anything that can influence interest rates, either directly (rise or fall in rates) or indirectly (news on macroeconomic conditions)”should affect the value of Bitcoin.

Benigno therefore compared the evolution of BTC with gold, the S&P 500 and the EUR/USD exchange rate during the hour following a dozen major macroeconomic announcements such as key rates, employment figures, etc

An example

The chart below shows the reaction of Bitcoin, Gold, S&P500 and the EUR/USD exchange rate one hour after the US jobs numbers (left panel). And a high after the Fed’s rate statement (right panel).

June 2016 employment figures were below expectations. Consequently, the dollar immediately depreciated by about 1% against the euro, the stock price fell by about 0.5% while the price of gold appreciated by 2% . Conversely, bitcoin did not show a clear direction.

At the June 2021 Fed meeting, the FOMC signaled that interest rates were expected to rise earlier and faster than expected. Again, the dollar, gold and stock prices reacted immediately while bitcoin did not react consistently.

Change in price (in %) just after the announcement of employment data (left graph) and the announcement of rates by the FED (right graph)

Conclusion of the study:

“Unlike exchange rates and stock markets, bitcoin hardly reacts to macroeconomic news. Even more surprising is the result that bitcoin also does not react to monetary policies. At first glance, our study casts some doubt on the role of policy rates on the valuation of bitcoin. »

Why is Bitcoin going it alone?

Bitcoin is different from other asset classes in that it does not offer a return. Quite the opposite of dollars invested in American debt or in a multinational action.

The value of bitcoin is not mechanically impacted by central bank interest rates. That said, the theory would be that an asset with no yield loses its appeal when rates rise.

It is theoretically more interesting to invest your money in a government bond yielding 5% per year than in gold. But this is not at all what we observe:

gold vs fed funds
Blue curve: FED key rate (%) / Orange curve: Price of an ounce of gold ($ per ounce)

Gold is above all seen as insurance against monetary collapse. Falling exchange rate, double-digit inflation, exchange controls, bank failures, etc.

This insurance is becoming increasingly popular as inflation soars along with the debt. The debts are such that it has become impossible to leave the rates high for too long. Otherwise it’s Weimar where the end of retreats…

And the fact is that we are nearing the end of the fiat ponzi. Inflation and strong geopolitical tensions (war) are the direct symptoms. The pangs of the Western money printing press are pushing the world towards a new international reserve currency.

Gold is as always the big contender. Central bank purchases are also at their highest since the 1960s. But Bitcoin is in ambush.

As such, Russia, which has been leading the revolt for years against the hegemony of the dollar, has stopped filling its coffers with gold, but has just reduced taxes for Siberian bitcoin miners…

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