A Critical Analysis of Volatility Surprise in Bitcoin Cryptocurrency and Other Financial Assets

Yianni Doumenis, Javad Izadi, Pradeep Dhamdhere, Epameinondas Katsikas and Dimitrios Koufopoulos
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Yianni Doumenis: The Claude Littner Business School, University of West London, London W5 5RF, UK
Javad Izadi: The Claude Littner Business School, University of West London, London W5 5RF, UK
Pradeep Dhamdhere: The Claude Littner Business School, University of West London, London W5 5RF, UK
Epameinondas Katsikas: Kent Business School, University of Kent, Canterbury CT2 7NZ, UK
Dimitrios Koufopoulos: The Centre for Distance Education, University of London, London WC1E 7HU, UK

Risks, 2021, vol. 9, issue 11, 1-15

Abstract: The purpose of this paper is to investigate the viability as compared with other financial assets of cryptocurrencies as a currency or as an asset investment. This paper also aims to see which macro variable relates more to the price of cryptocurrencies, especially Bitcoin. Since the whole concept of cryptocurrencies is quite novel, an attempt has been made to briefly explain the underlying blockchain technology that forms the bedrock of cryptocurrencies. In this study, we use secondary data, i.e., the price history of Bitcoin from September 2014 to September 2021 for the last seven years, captured from trading exchanges. We predicted monthly returns of Bitcoin with that of Standard & Poor’s 500 Index (S&P 500), gold, and Treasury Bonds. Our findings show that Bitcoin has very high volatility compared to S&P 500, Gold and Treasury Bonds. Also, our findings show that there is a positive correlation between Bitcoin’s price volatility and the other three financial assets before and during COVID-19. Hence, Bitcoin is acting more as a speculative asset rather than a steady store of value. This can be drawn from the comparison with the debt market i.e., a Treasury Bond that invests in long-dated (30 years) US treasuries with which Bitcoin shows no relationship. The findings of this study could help with understanding the future of Bitcoin. This has important implications for Bitcoin investors. The current study contributes to the extant literature by providing empirical evidence on long-term social sustainability vis-à-vis supply chain traceability.

Keywords: cryptocurrencies; Bitcoin; investment price volatility (search for similar items in EconPapers)
JEL-codes: C G0 G1 G2 G3 K2 M2 M4 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (13)

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Persistent link: https://EconPapers.repec.org/RePEc:gam:jrisks:v:9:y:2021:i:11:p:207-:d:677651

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