The price of bitcoin is up roughly 50 per cent since the start of the year, despite the US government signalling a tougher regulatory stance on cryptocurrency.
Bitcoin briefly hit $25,000 this week, having started 2023 below $16,600, taking it back to levels not seen since last August. Other cryptocurrencies have also seen a significant surge in recent days, adding more than $100 billion to the overall market.
The price recovery surprised some analysts, as it went against an established narrative among several economic experts that bitcoin’s market movements are largely driven by external macroeconomic and monetary news.
Some credited the price surge to reports in China that the country is planning to soften its stance on crypto, having launched a major crackdown against the industry in 2021.
A new study, however, suggests that neither news from China nor the US would have a significant impact on bitcoin’s price.
A report from the New York Federal Reserve found that bitcoin’s reaction to this and any other macroeconomic or monetary news will likely be “orthogonal” movement.
“Unlike other US asset classes, bitcoin is orthogonal to monetary and macroeconomic news,” the report stated.
The study used a comprehensive intraday dataset to analyse the effects of the news on the price of bitcoin, which the authors had originally posited was an asset “with no intrinsic value” for which its current price depends on the discounted value of its future price.
“The result that bitcoin does not react to monetary news is puzzling as it casts some doubts on the role of discount rates in pricing bitcoin,” the authors wrote.
Crypto market correlation with traditional markets was often cited by analysts in 2022 as a way of explaining or predicting bitcoin’s price movements, though the study calls into question such methods of analysis.
Simon Peters, a crypto market analyst at the online trading platform eToro, said the findings could support previous theories that bitcoin acts more like a form of ‘digital gold’ and a safe-haven asset during times of broader economic turmoil.
“The report stands in contrast to most mainstream thinking around bitcoin at the moment, where markets did indeed seem to correlate more heavily last year – although this year that correlation has been less apparent,” Mr Peters said.
“However, if bitcoin does indeed move differently to macroeconomic events then it could provide significant support for using it as a hedge against other markets – akin to gold.”
