Continuing through the Mt. Gox era to date. I have plotted the end of QE3 and the Rate Hikes to date.
FED announces Operation Twist on September 21st, 2011
The Federal Reserve begins purchasing bonds with 6 - 30 year maturities and selling bonds with maturities less than 3 years. This strengthens the USD as investors move to risk-off. BTC continues correcting.
FED announces Operation Twist will be expanded on June 20th, 2012
At this stage BTC had not created a new high in over a year since QE2 had ended as the USD continues strengthening.
QE3 announced by the FED on September 13th, 2012
FED expands QE3 on December 12th, 2012
After one year and 8 months BTC breaks its all time high and rallies substantially as the USD was further weakened by the FED. The FED could also no longer sell short maturity bonds as they did not have sufficient holdings to do so; creating a risk-on environment.
FED announces that it will begin tapering QE3 on December 18th, 2013
As the FED announces tapering of QE BTC begins a new correction, two months after this announcement Mt. Gox also collapses further correcting BTC and strengthening the USD.
February 2014 Mt. Gox files for Bankruptcy
It is hard to project a continuous correlation between the FED and the USD with respect of Bitcoin as the collapse of Mt. Gox was devastating to the price.
QE3 ends in October 2014
The end of QE3 also marks further strengthening of the USD. BTC continues weakening in the aftermath of the Mt. Gox collapse.
June 12, 2015 the FED Hikes Rates for the first time since June 2006
At this point in time BTC was decimated by the Mt. Gox collapse. My first instinct would be that as the FED hiked rates the USD would strengthen and investors would shift away from BTC as their trust in fiat is restored. However this does not happen. The FED hikes rates and BTC experiences a crash before rallying.
December 14th, 2016 the FED Hikes Rates for the second time
Further strengthening the USD, BTC experiences a crash before rallying through the all time highs set before the Mt. Gox collapse and the tapering of QE3.
March 15th, 2017 the FED Hikes Rates for the third time
Again strengthening the USD, BTC again experiences a crash before rallying to new all time highs.
June 14th, 2017 the FED Hikes Rates for the fourth time
And again strengthening the USD, BTC again crashes before rallying to new all time highs.
To conclude:
Looking at the chart the USD correlated very well with BTC during QE; as the USD was weakened by QE, BTC strengthened.
During the recent rate hikes BTC in nearly every instance experienced a 30% crash; a correlation of strong USD and weaker BTC. However after each crash it has consistently rallied to new all time highs. Which does not correlate with a strengthening USD.
What is Bitcoin measuring? Theories posit that it is real US inflation, or the real price action of Gold or is it simply pricing the value of the technology that underpins it? I can only speculate.
However it is important to note that these events could also be coinciding with events relating to the network such as Mt. Gox or soft/ hard forks, not solely the actions of the Federal Reserve.
- Rate Hikes are said to reduce inflation and strengthen the USD.
FED announces Operation Twist on September 21st, 2011
The Federal Reserve begins purchasing bonds with 6 - 30 year maturities and selling bonds with maturities less than 3 years. This strengthens the USD as investors move to risk-off. BTC continues correcting.
FED announces Operation Twist will be expanded on June 20th, 2012
At this stage BTC had not created a new high in over a year since QE2 had ended as the USD continues strengthening.
QE3 announced by the FED on September 13th, 2012
FED expands QE3 on December 12th, 2012
After one year and 8 months BTC breaks its all time high and rallies substantially as the USD was further weakened by the FED. The FED could also no longer sell short maturity bonds as they did not have sufficient holdings to do so; creating a risk-on environment.
FED announces that it will begin tapering QE3 on December 18th, 2013
As the FED announces tapering of QE BTC begins a new correction, two months after this announcement Mt. Gox also collapses further correcting BTC and strengthening the USD.
February 2014 Mt. Gox files for Bankruptcy
It is hard to project a continuous correlation between the FED and the USD with respect of Bitcoin as the collapse of Mt. Gox was devastating to the price.
QE3 ends in October 2014
The end of QE3 also marks further strengthening of the USD. BTC continues weakening in the aftermath of the Mt. Gox collapse.
June 12, 2015 the FED Hikes Rates for the first time since June 2006
At this point in time BTC was decimated by the Mt. Gox collapse. My first instinct would be that as the FED hiked rates the USD would strengthen and investors would shift away from BTC as their trust in fiat is restored. However this does not happen. The FED hikes rates and BTC experiences a crash before rallying.
December 14th, 2016 the FED Hikes Rates for the second time
Further strengthening the USD, BTC experiences a crash before rallying through the all time highs set before the Mt. Gox collapse and the tapering of QE3.
March 15th, 2017 the FED Hikes Rates for the third time
Again strengthening the USD, BTC again experiences a crash before rallying to new all time highs.
June 14th, 2017 the FED Hikes Rates for the fourth time
And again strengthening the USD, BTC again crashes before rallying to new all time highs.
To conclude:
Looking at the chart the USD correlated very well with BTC during QE; as the USD was weakened by QE, BTC strengthened.
During the recent rate hikes BTC in nearly every instance experienced a 30% crash; a correlation of strong USD and weaker BTC. However after each crash it has consistently rallied to new all time highs. Which does not correlate with a strengthening USD.
What is Bitcoin measuring? Theories posit that it is real US inflation, or the real price action of Gold or is it simply pricing the value of the technology that underpins it? I can only speculate.
However it is important to note that these events could also be coinciding with events relating to the network such as Mt. Gox or soft/ hard forks, not solely the actions of the Federal Reserve.
