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Do economic crises cause trading in Bitcoin?

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  • Jinsha Zhao

Abstract

Purpose - The paper provides new evidence for Bitcoin’s safe-haven property by examining the relationship between currency price, return and Bitcoin trading volume. Design/methodology/approach - A unique dataset from a person-to-person (p2p) exchange is used to investigate association between Bitcoin trading volume and currency prices. Currency returns are used to identify local economic crises, the 8 crisis affected currencies are Venezuela Bolivar (VES), Iranian Rial (IRR), Ukrainian Hryvnia (UAH), Argentine Peso (ARS), Egyptian Pound (EGP), Nigerian Naira (NGN), Turkish Lira (TRY) and Kazakhstani Tenge (KZT). Findings - The paper demonstrates that local economic crises are positively associated with increased Bitcoin trading. There is a negative association between trading volume and currency value (and return), suggesting low currency price and currency depreciation are accompanied with increased Bitcoin trading. The results not only hold for the crisis affected currencies but also currencies of advanced economies. Granger causality test also reinforces the negative association results. Originality/value - The finding indicates some forms of flight-to-safety have occurred during local market crises when capital flight from domestic markets to Bitcoin, strengthening Bitcoin’s hedging asset status. However, total global trading volume declines after the start of the COVID pandemic, suggesting that Bitcoin is still regarded as a speculative asset. Overall, the findings show that Bitcoin is a hedging asset to protect against local currency depreciation, but not a safe-haven asset for the global crisis.

Suggested Citation

  • Jinsha Zhao, 2022. "Do economic crises cause trading in Bitcoin?," Review of Behavioral Finance, Emerald Group Publishing Limited, vol. 14(4), pages 465-490, April.
    • Handle: RePEc:eme:rbfpps:rbf-02-2022-0048
    DOI: 10.1108/RBF-02-2022-0048
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    References listed on IDEAS

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    Cited by:

    1. Zhao, Jinsha & Miao, Jia, 2023. "Is Bitcoin used to evade financial sanction?," Finance Research Letters, Elsevier, vol. 55(PB).

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    More about this item

    Keywords

    Bitcoin; Cryptocurrency; Economic crisis; Currency devaluation; G01; G10; G28;
    All these keywords.

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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