Monetary policy and Bitcoin

Sören Karau

Journal of International Money and Finance, 2023, vol. 137, issue C

Abstract: I empirically study the impact of monetary policy on Bitcoin, and show that is has evolved over time. First, based on high-frequency data, the paper documents that Bitcoin prices did not immediately respond to US monetary policy announcements in the past; they only started doing so in late 2020, in a manner similar to other risky asset prices. Second, based on a structural VAR analysis I study the impact of monetary policy over longer horizons. I confirm the contractionary impact of a US monetary tightening in the post-2020 time period, but show that, historically, a US tightening used to persistently increase rather than decrease Bitcoin prices. To explain this result, I exploit spreads in Bitcoin valuations across currencies and blockchain data and link increased Bitcoin demand to East Asian economies subject to capital controls, particularly China. I discuss implications for the discussion of where demand for Bitcoin stems from: its recent responses to monetary policy confirm its role as a primarily speculative asset; yet, at least historically Bitcoin seems to have derived part if its value from enabling cross-border value transfers and capital flight.

Keywords: Bitcoin; Blockchain; High-frequency analysis; Monetary policy; Proxy VAR (search for similar items in EconPapers)
JEL-codes: E42 G32 L14 O16 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (12)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jimfin:v:137:y:2023:i:c:s0261560623000815

DOI: 10.1016/j.jimonfin.2023.102880

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