Do Bitcoin Stylized Facts Depend on Geopolitical Risk?

15 Pages Posted: 8 Feb 2020

See all articles by Messaoud Chibane

Messaoud Chibane

Neoma Business School; ESSEC Business School

Nathalie Janson

Neoma Business School

Date Written: February 1, 2020

Abstract

We show that the dynamics of Bitcoin (BTC) price are strongly influenced by the level of global geopolitical risk. Indeed, a number of well established stylized facts about BTC cease to be true when we condition the evolution of BTC returns on the GPR index. In particular, we find that when geopolitical risk is high, BTC is no longer a perfect portfolio diversifier as it correlates strongly with Gold, US treasury yields and negatively with EUR/USD. We also find that BTC price bubbles are much more likely to occur when geopolitical risk is high, i.e. when investors flock to BTC as a digital safe haven or to a lesser extent when geopolitical risk is low and the BTC market behavior is speculative. Conversely, when geopolitical risk is moderate we find that BTC returns are approximately normally distributed and therefore do not seem to foster asset pricing bubbles. These results suggest that investors should adjust their portfolio holdings of BTC while adequately taking into account the amount of geopolitical risk present in the economy. Last, we find that the efficiency (in its weak form) of the BTC market increases with the level of geopolitical risk and that in fact the BTC market is rather efficient for moderate and high GPR.

Keywords: Bitcoin, Geopolitical Risk, Hedging, Diversification, Bubbles

JEL Classification: G10, G11, G40, G41

Suggested Citation

Chibane, Messaoud and Janson, Nathalie, Do Bitcoin Stylized Facts Depend on Geopolitical Risk? (February 1, 2020). Available at SSRN: https://ssrn.com/abstract=3530020 or http://dx.doi.org/10.2139/ssrn.3530020

Messaoud Chibane (Contact Author)

Neoma Business School ( email )

1 Rue du Maréchal Juin
Mont Saint Aignan Cedex, 76825
France

ESSEC Business School ( email )

1, rue du Maréchal Juin
Mont Saint-Aignan, 76130
France

Nathalie Janson

Neoma Business School ( email )

1 Rue du Maréchal Juin
Mont Saint Aignan Cedex, 76825
France

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