Bitcoin: Can unemployment-associated macroeconomic news announcements sway returns?

Bitcoin has undoubtedly outperformed others like stocks, bonds, and commodities since the market rout associated with the COVID-19 pandemic began shaking the world to its core. Generally seen as a “risk-on” asset, Bitcoin has recorded tremendous growth over the last couple of years, growth that has catapulted the asset class as a whole towards wider adoption.

Interestingly, negative news and unfortunate events tend to translate to selling pressure and a fall in the prices of many, if not most stocks, meaning macroeconomic news has a considerable impact on stocks. Considering the notion of a high, though brief, correlation of Bitcoin with stocks, can this also mean that the returns of the world’s largest cryptocurrency can be swayed by macroeconomic news announcements?

In fact, that is possible, according to a recent study titled, ‘The Impact of Macroeconomic News on Bitcoin Returns.’ Examining four macroeconomic announcements, namely – GDP, unemployment, CPI, and durable goods, it was found that Bitcoin returns were affected by only two of these. News relating to GDP and CPI were found “not to have any statistically significant relationships” with Bitcoin returns. However, news related to durable goods and unemployment did significantly affect Bitcoin returns. The paper argued,

“Announcements generating the highest volume of news stories – GDP and unemployment, are important when informing investors’ expectations of future economic conditions. As such, we would expect these coefficients to demonstrate statistical significance. While significance is present in the case of unemployment, the fact that it is absent in all cases of GDP is somewhat surprising.”

The findings of this study were evidenced by Bitcoin hitting $6.8K in less than a week after grim statistics associated with rising unemployment in the United States made headlines, with the numbers as high as 66 million.

Besides, the study further noted,

“Market sensitivity to consumer durable announcements indicates that Bitcoin is at once treated by some investors as a hedge, with decreases in Bitcoin returns during positive announcements with respective to unemployment and consumer durables”

Bitcoin is no stranger to a clash of narratives, be it “safe-haven,” “non-correlated,” ” speculative bet,” or “investment hedge.” So far, Bitcoin has outperformed stocks; however, despite that, it still remains sensitive to major moves on Wall Street as the correlation with the S&P500 appeared to move upward.

Besides, Binance Research had recently found a ‘moderate’ positive correlation between Bitcoin and U.S equities during the first quarter of 2020. However, it had also clarified that this high correlation coefficient was very unlikely “to persist in the medium to long-term.”