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Economic uncertainty and national bitcoin trading activity

Jan Wüstenfeld and Teo Geldner

The North American Journal of Economics and Finance, 2022, vol. 59, issue C

Abstract: This study analyzes the dynamics between bitcoin trading, price activities, and economic surprise shocks from a broad and novel perspective on a national level. We start by estimating the response of bitcoin trading in terms of volume and volatility to economic surprises. Following this, we extend our framework by applying a Generalized AutoRegressive Conditional Heteroskedasticity model to get an indication of the volatility reaction of national bitcoin activities to economic surprise shocks. Our results show that local and global shocks affect local bitcoin activities and trading volatilities, confirming that economic events affect bitcoin markets. We argue that increased trading activity, coupled with a price reaction, indicates that bitcoin might be considered a hedge or safe haven asset against economic uncertainty. We find evidence that bitcoin is treated as a speculative asset against negative economic policy uncertainty shocks in Canada pre-Covid-19. These results change during the Covid-19 pandemic, leading to a significant structural break. Here, we find indications that bitcoin might be treated as a safe-haven asset in New Zealand and Australia. This shows that bitcoin behaves differently depending on the studied country, underlining the importance of country-level studies. It also shows that bitcoin is a new asset that is evolving rapidly and that the period in which it is studied is important.

Keywords: Bitcoin trading; Economic surprise shock; Economic policy uncertainty; Covid−19 (search for similar items in EconPapers)
JEL-codes: E44 F15 G15 (search for similar items in EconPapers)
Date: 2022
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecofin:v:59:y:2022:i:c:s1062940821002199

DOI: 10.1016/j.najef.2021.101625

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