Flight to Bitcoin

87 Pages Posted: 7 Nov 2018 Last revised: 9 Oct 2021

See all articles by Gloria Yang Yu

Gloria Yang Yu

Singapore Management University - Lee Kong Chian School of Business

Jinyuan Zhang

UCLA Anderson School of Management

Date Written: October 08, 2021

Abstract

This paper uncovers a novel phenomenon of flight-to-Bitcoin (FTB) whereby local demand for Bitcoin increases with local economic policy uncertainties. FTB holds across Bitcoin demand proxies including local premiums over the US market, turnover, and web traffic on cryptocurrency exchanges. We find that FTB is mainly driven by a lack of confidence in local authorities. Consistent with this interpretation, FTB is stronger during corruption incidents and Bitcoin ownership shifts from centralized exchanges to decentralized wallets amid turbulence. A comparison with safe-haven assets further differentiates FTB from other forms of flight-to-safety. The evidence collectively illustrates an overlooked motivation of Bitcoin investment: investors hold Bitcoin to mitigate their concerns about local authorities.

Keywords: Cryptocurrency, Bitcoin, Capital controls, Economics policy uncertainty, Foreign exchange

JEL Classification: D40, D84, G12, G14

Suggested Citation

Yu, Gloria Yang and Zhang, Jinyuan, Flight to Bitcoin (October 08, 2021). Available at SSRN: https://ssrn.com/abstract=3278469 or http://dx.doi.org/10.2139/ssrn.3278469

Gloria Yang Yu (Contact Author)

Singapore Management University - Lee Kong Chian School of Business ( email )

469 Bukit Timah Road
Singapore 912409
Singapore

Jinyuan Zhang

UCLA Anderson School of Management ( email )

Los Angeles, CA
United States

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