How Do Cryptocurrencies Price Economic News?

We use novel intraday data to study the price discovery process in cryptocurrency markets around U.S. monetary policy, inflation, and labor market announcements. Our analysis reveals the following: (1) volatility, trading volume, and bid-ask spreads rise sharply at announcement times and remain elevated for up to 30 minutes relative to comparable non-announcement intervals, indicating that cryptocurrency investors pay attention to these announcements and that information is quickly incorporated; (2) announcement surprises associated with higher yields or "risk-off" conditions cause substantial cryptocurrency price declines - pointing to a potential strengthening of U.S. monetary policy transmission to the real economy in recent years; (3) the time-varying magnitude and direction of price reactions more closely resemble those of U.S. equities than those of fiat currencies or commodities, suggesting that cryptocurrencies behave primarily as risk-sensitive assets; (4) price impact estimates of order flow around announcements are consistent with rising institutional participation in cryptocurrency markets and their crucial role for price discovery.