August 19, 2022
Greg Cipolaro & Ethan Kochav

Research Weekly - What Fiscal and Monetary Policy Say About Bitcoin


  • As the White House signs two new stimulus bills into law, monetary and fiscal policy continue to play a role in driving crypto markets.
  • One derivative of these policies, the growth in monetary bases, shows a growing but limited impact on bitcoin.
  • With inflation still a hot topic, perhaps the slowing growth in inflation encourages less hawkish monetary policy.

More Fiscal Stimulus (and Taxes) Signed into Law

This week, the White House signed into law the Inflation Reduction Act (IRA). The bill, which is designed to reduce the deficit by offsetting $437B of new spending largely on energy and climate change initiatives with new tax collections and prescription drug pricing reforms, is ostensibly aimed at reducing the macroeconomic issue plaguing the US economy: inflation. This comes on the heels of another economic reform, the CHIPS and Science Act, which provides over $50B to American semiconductor companies to expand manufacturing and research and development efforts domestically.

Since the onset of the COVID-19 health care crisis nearly two and half years ago, monetary and fiscal policies have been seen as a driving force behind asset price movements. Risk asset prices collapsed in March 2020 in response to the sudden screeching halt in the economy, but then rebounded swiftly in the wake of swift monetary action by the Federal Reserve and fiscal stimulus approved by legislators. The Fed essentially rolled out its entire Global Financial Crisis response playbook in a matter of weeks, and the fiscal stimulus was the biggest its been since the Great Depression (as a percentage of GDP). Of late, fiscal and monetary policy have been major drivers of bitcoin prices, as can be seen in the chart below of major fiscal and monetary policies in the US throughout bitcoin’s price history. The outburst of initial stimulus saw rising bitcoin prices, and its withdrawal saw prices retrace.

Monetary Bases Show Growing, but Limited, Impact on Bitcoin

The evidence of a growing relationship between bitcoin and policy, especially monetary policy, can be seen in bitcoin’s relationship to the U.S. and global monetary base (also known as M2). Monetary policy is designed to increase or decrease the monetary base, so dovish policy should result in M2 growth and vice versa. Historically, there has not been statistical evidence of a relationship between bitcoin and M2 growth. However, recently, there have been signs of growing (albeit still limited) relationship between the two.

Inflation Continues to be Top of Mind

As was exhibited by the White House signing the Inflation Reduction Act into law, inflation has been the economic story over the past year and a half. While certain commodities and input prices were exacerbated by the conflict between Russia and Ukraine that started in February of this year, the origin and outgrowth of inflation seemed to originate with the COVID-19 health care crisis and the fiscal and monetary stimulus marshalled in its response. In the first bit of good news on the inflation front, however, the July Consumer Price Index (CPI) released on August 10, showed the first signs of deceleration (using 2-year stacked growth) since inflation started to rise at the end of 2020. Risk markets cheered the news with both stocks and bitcoin rising on the release. The market’s expectation is that as inflation is tamed, hawkish monetary policy can lessen as well.

Market Update

Bitcoin saw losses on the week, dropping 3.7%. Equities saw gains, as the S&P 500 rose 1.9% and the Nasdaq increased 1.5%. Bonds were mixed on the week: Investment Grade Corporate Bonds were flat, High Yield Corporate Bonds decreased by 0.6%, and Long-Term Treasuries increased by 0.4%. Gold fell by 1.6% on the week as real yields were mixed and inflation expectations decreased.

Important News This Week

Regulation and Taxation

Federal Reserve Releases Guidance for Banks Pursuing Crypto — Fed

SEC Files Unregistered Security Complaint Against Token Issuer — SEC

IRS Serves Summons on Crypto Exchange Seeking Tax Avoiders — DoJ


Galaxy Announces Termination of BitGo Acquisition — Galaxy

BitGo Plans to Seek Damages from Galaxy — BitGo          

Celsius Releases Coin Report — Celsius

Zipmex Granted 3-Month Moratorium — The Block

Dragonfly Purchases Hedge Fund — The Block

How Mashinky Took Control over Celsius Trading Strategy — Financial Times

Genesis CEO Leaves Firm — Genesis

Former Coinbase VP Adam White Joins Blackstone — CoinDesk


ETHW Core Releases Initial Version — ETHW Team

Crypto Nomads Move Back to Big Cities — Bloomberg

Tether Changes its Accounting Firm to BDO Italia — Tether

Upcoming Events

August 26th – CME bitcoin futures and options expiry

September 2nd – United States Non-Farm Payrolls

September 13th – July CPI data is released

September 21st – Next FOMC interest rate decision

Thanks for joining us again this week. Please reach out with any questions or comments.

The NYDIG Team

This report has been prepared solely for informational purposes and does not represent investment advice or provide an opinion regarding the fairness of any transaction to any and all parties nor does it constitute an offer, solicitation or a recommendation to buy or sell any particular security or instrument or to adopt any investment strategy. Charts and graphs provided herein are for illustrative purposes only. This report does not represent valuation judgments with respect to any financial instrument, issuer, security or sector that may be described or referenced herein and does not represent a formal or official view of New York Digital Investment Group or its affiliates (collectively NYDIG).

It should not be assumed that NYDIG will make investment recommendations in the future that are consistent with the views expressed herein, or use any or all of the techniques or methods of analysis described herein. NYDIG may have positions (long or short) or engage in securities transactions that are not consistent with the information and views expressed in this report.

The information provided herein is valid only for the purpose stated herein and as of the date hereof (or such other date as may be indicated herein) and no undertaking has been made to update the information, which may be superseded by subsequent market events or for other reasons. The information in this report may contain forward-looking statements regarding future events, targets or expectations. NYDIG neither assumes any duty to nor undertakes to update any forward-looking statements. There is no assurance that any forward-looking events or targets will be achieved, and actual outcomes may be significantly different from those shown herein. The information in this report, including statements concerning financial market trends, is based on current market conditions, which will fluctuate and may be superseded by subsequent market events or for other reasons.

Information furnished by others, upon which all or portions of this report are based, are from sources believed to be reliable. However, NYDIG makes no representation as to the accuracy, adequacy or completeness of such information and has accepted the information without further verification. No warranty is given as to the accuracy, adequacy or completeness of such information. No responsibility is taken for changes in market conditions or laws or regulations and no obligation is assumed to revise this report to reflect changes, events or conditions that occur subsequent to the date hereof.

Nothing contained herein constitutes investment, legal, tax or other advice nor is it to be relied on in making an investment or other decision. Legal advice can only be provided by legal counsel. NYDIG shall have no liability to any third party in respect of this report or any actions taken or decisions made as a consequence of the information set forth herein. By accessing this report, the recipient acknowledges its understanding and acceptance of the foregoing terms.


Bitcoin for All.
Insights for You.

Subscribe now to learn what’s driving bitcoin markets, track significant regulatory developments, and get the data that deserves your attention.