Whether and when did bitcoin sentiment matter for investors? Before and during the COVID-19 pandemic

Ahmet Faruk Aysan (), Erhan Mugaloglu, Ali Yavuz Polat and Hasan Tekin
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Ahmet Faruk Aysan: Hamad Bin Khalifa University
Ali Yavuz Polat: Abdullah Gul University
Hasan Tekin: Karabuk University

Financial Innovation, 2023, vol. 9, issue 1, 1-24

Abstract: Abstract Using a wavelet coherence approach, this study investigates the relationship between Bitcoin return and Bitcoin-specific sentiment from January 1, 2016 to June 30, 2021, covering the COVID-19 pandemic period. The results reveal that before the pandemic, sentiment positively drove prices, especially for relatively higher frequencies (2–18 weeks). During the pandemic, the relationship was still positive, but interestingly, the lead-lag relationship disappeared. Employing partial wavelet tools, we factor out the number of COVID-19 cases and deaths and the Equity Market Volatility Infectious Disease Tracker index to observe the direct relationship between a change in sentiment and return. Our results robustly reveal that, before the pandemic, sentiment had a positive effect on return. Although positive coherence still existed during the pandemic, the lead-lag relationship disappeared again. Thus, the causal relationship that states that sentiment leads to return can only be integrated into short-term trading strategies (up to six weeks frequency).

Keywords: Bitcoin; Return; COVID-19; Sentiment; TRMI (search for similar items in EconPapers)
JEL-codes: C21 C22 G11 G14 G17 (search for similar items in EconPapers)
Date: 2023
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DOI: 10.1186/s40854-023-00536-9

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