Bitcoin’s Response to U.S. Monetary Policy Easing Announcements
Abstract: This paper aims to evaluate the effect of the U.S. monetary policy on the bitcoin price. In particular, how monetary policy easing affects the bitcoin returns. One of the main tenets of bitcoin is that it is a hedge against inflation caused by a large increase in the money supply. Inspired by that idea, this study intends to analyze bitcoin’s instant response to the Federal Reserve’s monetary policy easing announcements using an event study methodology and intraday data. For this, the impact of the Federal Reserve Open Market Committee (FOMC) easing announcements on the bitcoin returns is analyzed. The studied period starts 10 minutes before each announcement and finishes 45 minutes after the announcement. For robustness, the relationship between changes in the federal funds futures rate and the bitcoin returns is evaluated. It was found that the U.S. monetary policy easing announcements does not affect the bitcoin returns in the studied period. Furthermore, the results suggest that U.S. monetary policy easing announcements and bitcoin returns do not have a significant and instant relationship.
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