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Monetary Policy Uncertainty and Bitcoin Returns Across Volatility Regimes

Article arXiv papers · Author: Mohammadreza Mahmoudi
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Summary

This study examines how monetary policy uncertainty (MPU) relates to Bitcoin returns using monthly observations from July 2010 through August 2023. It applies a Markov Switching Means VAR model to distinguish between two return regimes, characterized in the document as low and high volatility. The analysis also considers Bitcoin's sensitivity to Federal Open Market Committee decisions.

The reported relationship between rising MPU and Bitcoin returns is negative in both regimes, with a larger negative estimate in the high-volatility regime. This suggests the association is not limited to one type of market condition. The document does not give details about model specification, uncertainty around the estimates, or the findings on FOMC decisions, and it does not establish that policy uncertainty causes return changes. The reported results are specific to Bitcoin, the sample period, and the model used.

Key ideas

  • The study uses monthly Bitcoin data spanning July 2010 to August 2023.
  • A Markov Switching Means VAR model identifies low- and high-volatility return regimes.
  • Higher monetary policy uncertainty is associated with lower Bitcoin returns in both regimes.
  • The reported negative estimate is larger in the high-volatility regime.
  • The study also examines Federal Open Market Committee decisions, but the document does not state those findings.

Tags

CryptoVolatilityStatisticsEvent-driven
Full text
# Examining the Effect of Monetary Policy and Monetary Policy Uncertainty on Cryptocurrencies Market


# Examining the Effect of Monetary Policy and Monetary Policy Uncertainty on Cryptocurrencies Market









This study investigates the influence of monetary policy and monetary policy uncertainties on Bitcoin returns, utilizing monthly data of BTC, and MPU from July 2010 to August 2023, and employing the Markov Switching Means VAR (MSM-VAR) method. The findings reveal that Bitcoin returns can be categorized into two distinct regimes: 1) regime 1 with low volatility, and 2) regime 2 with high volatility. In both regimes, an increase in MPU leads to a decline in Bitcoin returns: -0.028 in regime 1 and -0.44 in regime 2. This indicates that monetary policy uncertainty exerts a negative influence on Bitcoin returns during both downturns and upswings. Furthermore, the study explores Bitcoin's sensitivity to Federal Open Market Committee (FOMC) decisions.

Shown in full with attribution under the source's licence. Licence: abstract CC0

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.