Thus far, bitcoin prices have never had a particularly strong correlation with mainstream monetary trends or policy. Until today, that is.
This morning, the European Central Bank (ECB) announced that it would be cutting interest rates into the negative. In effect, this means that Europe’s banks would actually be charged a small fee for storing their money with the ECB. The idea is to motivate those banks to find other places to invest their funds, rather than simply playing it safe. Given that this is the first time a central bank has charged a negative interest rate, however, it sent shockwaves across the global financial industry, as it indicated that the ECB was no longer willing to be a safe haven for large deposits.
Almost immediately, bitcoin prices began a rapid climb, jumping from the mid-$640 range to the mid-$660 range in a matter of hours. While bitcoin prices have generally been on the rise for the better part of the last three weeks, the timing of this jump — starting moments after the ECB announcement — hints that some investors are already beginning to use bitcoin as a hedge. Although the idea that this would eventually happen is nothing new, as some observers noted, today might mark the first time that bitcoin prices reacted strongly to mainstream financial news.
What does this mean in the long run? It could be the first tremor of Wall Street entering into bitcoin in a significant way. It could also mean the beginning of one of the most volatile periods in bitcoin history, with a massive influx of significant amounts of money reacting to moves by the rest of the global market.