Bitcoin, cryptocurrency’s flagship coin has been a grey area in relation to both monetary and macroeconomic factors. Different regulators, such as the New York Federal Reserve, deep-dive into this relationship and the after-effects the asset class may or may not possess.
Various factors, including monetary and macroeconomic news, influence Bitcoin’s price. While it is true that Bitcoin is a relatively new and distinct asset class, it is still subject to many of the same market forces as traditional asset classes.
For example, when there is news that suggests inflation is rising or the value of the U.S. dollar is falling, this can cause investors to turn to Bitcoin as a potential hedge against inflation and a store of value. However, there have been a few questions asked on this topic.
Conversely, positive economic news, such as solid job growth or a rising stock market, can lead investors to shift away from Bitcoin and towards more traditional assets. Furthermore, Bitcoin has been known to experience significant price swings in response to regulatory announcements or changes in government policy. For example, when China banned cryptocurrency trading in 2017, the price of Bitcoin dropped significantly.
Understanding the Relationship
While Bitcoin may not be directly correlated with all traditional asset classes, it is still subject to many of the same market forces, including financial and macroeconomic news. To shed more light on the relationship, the Federal Reserve Bank of New York published a report analyzing the impact of macroeconomic factors on the price of Bitcoin.
