• The Federal Reserve Bank of New York recently conducted a study which concluded that Bitcoin shares most of the features of a store of value such as gold.
• The report highlighted that Bitcoin cannot be used as a form of payment at scale due to its high volatility and unresponsiveness to both monetary and macroeconomic news.
• A probability model was formulated to determine the future probabilities related to Bitcoin value, which indicated that monetary news about the future path 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 which concluded that Bitcoin shares most of the features of a store of value such as gold. It highlighted that Bitcoin cannot be used as a form of payment at scale due to its high volatility and unresponsiveness to both monetary and macroeconomic news.

Speculative Asset Model

A probability model was formulated to determine the future probabilities related to Bitcoin value, which indicated that monetary news about the future path 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, making exports less competitive in global markets. Consequently, this could potentially lead to an increase in demand for assets like Bitcoin with no intrinsic value dependent solely on speculation.

Bitcoin’s Orthogonality

The Fed concluded that Bitcoin is orthogonal – meaning it does not follow normal patterns – compared to other asset classes like precious metals and S&P 500 when responding to macroeconomic news. This suggests that investors should not view it as an inflation hedge or use it for diversifying their portfolio against economic shocks since it would not be responsive in times when other assets are.

Fed Chair Jerome Powell’s View

This finding by the Federal Reserve Bank echoes Fed Chair Jerome Powell’s viewpoint back in 2021 stating crypto assets are too volatile to be used as a form of payment at scale. Due to this fact combined with its high level or risk and speculative nature, Powell suggested investors should take precautionary measures before investing in cryptocurrencies including assessing their own financial situation and understanding associated risks before investing in any asset class including digital currencies like bitcoin.

Conclusion

In conclusion, while there are certain similarities between bitcoin and precious metals like gold from an investment standpoint due its lack of intrinsic value being dependent solely on speculation, investors should understand associated risks involved when investing in any asset class including digital currencies like bitcoin before taking any action towards investments related thereto due its highly volatile nature causing extreme fluctuations making it difficult for utilization as payment method at scale presently based upon current market conditions today .