BitCoin's Roller Coaster: Systemic Risk and Market Sentiment
10 Pages Posted: 11 Jul 2016
Date Written: July 11, 2016
This study investigates the determinants of Bitcoin exchange rate over the period Feb. 2013-Apr. 2016 within a VAR framework. We are mainly driven by the narrow knowledge of this high volatile cryptocurrency’s behavior. We ask the question how and to what extent the overall credit and liquidity conditions affect Bitcoin. A novel feature of this paper is its important implications for the investors in order to understand Bitcoin’s determinants. Also, the empirical investigation is conducted by means of VAR model that permits the analysis of multi-directional relationships in a dynamic context. Our findings indicate that investor sentiment is the only important Bitcoin determinant among other factors which capture the overall economic situation, while spillover effects measured by the spillover matrix introduced by Diebold and Yilmaz (2009) indicate that Bitcoin appears to be a “lonely boat” that is mostly affected by “idiosyncratic” factors. Hence, it is very important for investors to gain knowledge on Bitcoin’s special characteristics, while paying attention to the investors sentiment.
Keywords: Cryptocurrency, Bitcoin, Systemic risk, Vector Autoregressive models
JEL Classification: C35, E44, F31, G15
Suggested Citation: Suggested Citation