The Crypto Cycle and US Monetary Policy
Davide Furceri and
No 2023/163, IMF Working Papers from International Monetary Fund
We examine fluctuations in crypto markets and their relationships to global equity markets and US monetary policy. We identify a single price component—which we label the “crypto factor”—that explains 80% of variation in crypto prices, and show that its increasing correlation with equity markets coincided with the entry of institutional investors into crypto markets. We also document that, as for equities, US Fed tightening reduces the crypto factor through the risk-taking channel—in contrast to claims that crypto assets provide a hedge against market risk. Finally, we show that a stylized heterogeneous-agent model with time-varying aggregate risk aversion can explain our empirical findings, and highlights possible spillovers from crypto to equity markets if the participation of institutional investors ever became large.
Keywords: US Monetary Policy; Cryptoassets; Stock Markets.; Fed tightening; crypto market; crypto investor; crypto factor; Virtual currencies; Stock markets; Blockchain and DLT; Financial cycles; Market risk; Global (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ban, nep-cba, nep-fdg, nep-mon and nep-pay
References: Add references at CitEc
Citations: Track citations by RSS feed
Downloads: (external link)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:imf:imfwpa:2023/163
Ordering information: This working paper can be ordered from
Access Statistics for this paper
More papers in IMF Working Papers from International Monetary Fund International Monetary Fund, Washington, DC USA. Contact information at EDIRC.
Bibliographic data for series maintained by Akshay Modi ().