Fed: Bitcoin Shares Most of Gold’s Store of Value Features

• The Federal Reserve Bank of New York has released a report that shows Bitcoin as an asset with no intrinsic value and unresponsive to macroeconomic news.
• The report highlighted that Bitcoin is similar to Gold and other precious metals rather than the US dollar, due to its high volatility which prohibits it from being used as a form of payment at scale.
• According to the probability model, 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: Bitcoin Similar to Gold Rather Than US Dollar

The Federal Reserve Bank of New York has released a study concluding that Bitcoin shares most of the features of a store of value such as gold, due to its high volatility and inability to be used as a form of payment at scale. The report stated that while traditional assets respond significantly to macroeconomic news, Bitcoin is largely unresponsive in comparison.

Bitcoin Unresponsive To Monetary & Macroeconomic News

The Fed provided a model that showed Bitcoin as an asset with no intrinsic value for which its current price depends on the discounted value of its future price. The Fed concluded that Bitcoin is unresponsive to both monetary and macroeconomic news compared to other asset classes like precious metals and S&P 500.

Monetary News Affects Future Path Of Policy

The probability model formulated by the Fed indicated that monetary news about the future path of policy had larger effects on Bitcoin price than those about the current target rate. An unexpected increase in US inflation may lead to higher input costs for exports, making a nation’s exports less competitive in global markets thus affecting it’s future path of policy.

Fed Chair Jerome Powell’s Statement

The study reaffirms what Fed Chair Jerome Powell said back in 2021 – crypto assets are too volatile to be used as a form of payment. Nevertheless, investors can use it as an alternative store-of-value similar to gold or other precious metals instead of relying on traditional currencies such as USD or EURO due its orthogonality with all macro news considered except CPI (Consumer Price Index).

Investors Should Take Caution

Despite being able to provide alternative options for investors looking for hedging against market fluctuations, cryptocurrencies remain highly volatile and should be treated with caution when investing in them due their lack responsivity towards economic developments globally.

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