Estimating the reaction of Bitcoin prices to the uncertainty of fiat currency

Xuejun Jin, Keer Zhu, Xiaolan Yang and Shouyang Wang

Research in International Business and Finance, 2021, vol. 58, issue C

Abstract: Recent studies have found that investors move from fiat currencies to Bitcoin cryptocurrency in environments with low trust and high uncertainty. This paper investigates the reaction of Bitcoin prices to uncertainty concerning fiat currencies by introducing a complete ensemble empirical mode decomposition with adaptive noise (CEEMDAN)-based event analysis approach. The 2013 Cyprus bailout is used as an event over the uncertainty of fiat currencies. With the proposed approach, the original Bitcoin price series is decomposed into high-frequency, low-frequency, and trend components, thus disentangling the short-, medium-, and long-term effects of the events on Bitcoin prices, respectively. We find that the low-frequency component is dominant and increased because of the event. In addition, the announcement significantly increased the intensity of short-term fluctuations in Bitcoin prices. However, there was no structural change in Bitcoin prices in the long-term trend. This paper provides a way to show the reaction of Bitcoin prices to the uncertainty of fiat currencies at different time scales and suggests that the reaction is mainly captured by the medium-term trend.

Keywords: Bitcoin; Fiat currency; Empirical mode decomposition; Event analysis (search for similar items in EconPapers)
Date: 2021
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:riibaf:v:58:y:2021:i:c:s0275531921000726

DOI: 10.1016/j.ribaf.2021.101451

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