Quantile analysis of Bitcoin returns: uncovering market dynamics

Monia Antar

Journal of Risk Finance, 2024, vol. 26, issue 1, 122-146

Abstract: Purpose - This study delves into Bitcoin’s return dynamics to address its pronounced volatility, particularly in extreme market conditions. We analyze a broad range of explanatory variables, including traditional financial indicators, innovative cryptocurrency-specific metrics and market sentiment gauges. We uniquely introduce the Conference Board Leading Economic Indicator (LEI) to the cryptocurrency research landscape. Design/methodology/approach - We employ quantile regression to examine Bitcoin’s daily and monthly returns. This approach captures timescale dependencies and evaluates the consistency of our findings across different market conditions. By conducting a thorough analysis of the entire return distribution, we aim to reveal how various factors influence Bitcoin’s behavior at different risk levels. The research incorporates a comprehensive set of explanatory variables to provide a holistic view of Bitcoin’s market dynamics. Additionally, by segmenting the study period, we assess the consistency of the results across diverse market regimes. Findings - Our results reveal that factors driving Bitcoin returns vary significantly across market conditions. For instance, during downturns, an increase in transaction volume is linked to lower Bitcoin returns, potentially indicating panic selling. When the market stabilizes, a positive correlation emerges, suggesting healthier ecosystem activity. Active addresses emerge as a key predictor of returns, especially during bearish phases, and sentiment indicators such as Wikipedia views reveal shifting investor optimism, depending on market trends. Monthly return analysis suggests Bitcoin might act as a hedge against traditional markets due to its negative correlation with the S&P 500 during normal conditions. Practical implications - The study’s findings have significant implications for investors and policymakers. Understanding how different factors influence Bitcoin returns in varying market conditions can guide investment strategies and regulatory approaches. Originality/value - A novel contribution of this study is the identification of Bitcoin’s sensitivity to broader economic downturns as demonstrated by the negative correlation between LEI and returns. These insights not only deepen our understanding of Bitcoin market behaviour but also offer practical implications for investors, risk managers and policymakers navigating the evolving cryptocurrency landscape.

Keywords: Cryptocurrency; EPU index; Google trends; VIX; Conference board leading indicator; Trade difficulty; Hash rate; G10; G15; G23 (search for similar items in EconPapers)
Date: 2024
References: Add references at CitEc
Citations:

Downloads: (external link)
https://www.emerald.com/insight/content/doi/10.110 ... d&utm_campaign=repec (text/html)
https://www.emerald.com/insight/content/doi/10.110 ... d&utm_campaign=repec (application/pdf)
Access to full text is restricted to subscribers

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eme:jrfpps:jrf-05-2024-0154

DOI: 10.1108/JRF-05-2024-0154

Access Statistics for this article

Journal of Risk Finance is currently edited by Nawazish Mirza

More articles in Journal of Risk Finance from Emerald Group Publishing Limited
Bibliographic data for series maintained by Emerald Support ().