Is Bitcoin A Hedge Against Central Banking? Evidence from AI-Driven Monetary Policy Expectations
Maxime L. D. Nicolas, François Sicard, Marion Laboure, Zixin Sun, Anahí Rodríguez-Martínez
TLDR
Bitcoin prices react negatively to hawkish central bank narratives, acting as a sensitive barometer of monetary policy expectations, independent of actual rate changes.
Key contributions
- Developed an LLM-based Monetary Policy Expectations (MPE) index from 118,000+ market messages.
- Hawkish central bank narratives consistently trigger negative Bitcoin price responses.
- This negative reaction is independent of actual interest rate adjustments.
- The MPE index acts as a leading indicator, Granger-causing Bitcoin returns at short-to-medium horizons.
Why it matters
This study provides novel evidence that Bitcoin is highly sensitive to central bank signaling, not just rate changes. The LLM-derived MPE index offers a powerful new tool for understanding and predicting digital asset movements. It highlights Bitcoin's role as a barometer of global monetary discourse.
Original Abstract
This study investigates the transmission of monetary policy narratives to Bitcoin prices, distinguishing the impact of ex-ante expectations from ex-post interest rate implementation. We introduce a high-frequency Monetary Policy Expectations (MPE) index, using a Large Language Model (LLM)-based classification of 118,000+ market messages to achieve a precise hawkish/dovish decomposition. Results from a framework combining Long Short-Term Memory (LSTM) networks with SHapley Additive exPlanations (SHAP) indicate that Bitcoin functions as a sensitive barometer of central bank signaling; specifically, hawkish narratives consistently trigger negative price responses independently of actual Federal Funds Rate adjustments. We demonstrate that the MPE index Granger-causes Bitcoin returns at short-to-medium horizons, establishing linear predictive causality, while the LSTM-SHAP framework reveals pronounced non-linear, macroeconomic regime-dependent interactions. These findings highlight Bitcoin's structural sensitivity to global monetary discourse, establishing LLM-derived sentiment as a potent leading macroeconomic indicator for the digital asset landscape.
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