Federal Reserve rate cuts have not driven prices up, deeming Bitcoin as a safe haven asset premature.

In the past, Bitcoin (BTC) has been portrayed as a store of value, and after international events such as the "US-China trade war" and the "US-Iran conflict," it further strengthened the perception among investors that Bitcoin, like gold and other precious metals, possesses hedging characteristics. However, recent research indicates that Bitcoin may not actually belong to the category of hedging assets.

Fed Rate Cuts Expected to Drive Bitcoin Price Up

According to the latest research from overseas media The Block, in the past three rate cuts by the Federal Reserve, Bitcoin's performance did not align with the expected price movement of a safe haven asset.

Generally, during macroeconomic turmoil, the Fed would choose to cut rates to increase the circulation of the US dollar in the market, weaken the strong dollar, and historically, the trend of the dollar and gold has been inversely related. In other words, rate cuts are relatively favorable for safe haven assets. Therefore, many analysts in the market believe that the expectation of the Fed implementing rate cuts will help drive the price of Bitcoin up. However, looking at the price performance from last year, Bitcoin did not exhibit the expected price movement.

In 2019, the Fed implemented three rate cuts, and the research found that during these three rate cuts, Bitcoin's price did not show any significant rebound. Instead, the median returns over 1 week, 1 month, and 3 months were -5.0%, -20.9%, and -11.0%, respectively.

100% Probability of Future Rate Cuts

On the other hand, according to Reuters, Goldman Sachs stated last Friday that the new coronavirus outbreak will prompt the Federal Reserve to cut rates by 75 basis points within three months by June this year and hinted at up to three rate cuts starting from the next meeting in March. According to CME Group's FedWatch data, the probability of the Fed announcing a 25 basis point rate cut in the March meeting has reached 100%.

The Block believes that the analysis results indicate that rate cuts are not related to Bitcoin price movements. Therefore, the high probability of consecutive rate cuts in the future is unlikely to be a catalyst for Bitcoin's rise.

Safe Haven Asset Status in Question

During macro risk periods such as the "US-China trade war" and the "US-Iran conflict," Bitcoin's performance stood out. However, in the global epidemic of the Wuhan pneumonia, Bitcoin and the stock market both plummeted together. When the global market faced ruthless selling, Bitcoin failed to act as a store of value and its performance was even worse than any traditional asset, depreciating by 15% in less than a week. This has once again sparked discussions about whether Bitcoin belongs to the category of safe haven assets.

Galaxy Digital CEO Mike Novogratz stated that during such a black swan event, investors will inevitably seek to minimize the impact and choose to take profits to reduce further losses.

How did $btc go from being a hedge against bad stuff to getting washed out and trading like a risk asset? When things go from bad, to very very bad like they did last week, investors take leverage down as fast as they can. They book profits to make up for other losses. Ouch.

— Mike Novogratz (@novogratz) March 1, 2020

Furthermore, the optimal choice for safe haven assets - gold, also dropped by approximately 5% at the end of last week.

Related Reading

• Author of "Principle": Bitcoin's volatility makes gold the safe haven asset during economic recession
• Wall Street's "Fear Index" nears yearly high, is Bitcoin now a safe haven asset?

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