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The Quantitative Easing Bursts Bitcoin Price

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Listed:
  • Marco Patacca
  • Sergio Focardi

Abstract

In this paper we analyze the existence of cointegrating relationships between Bitcoin, S&P 500, and the quantity of money M2. We perform our analysis with and without applying time warping pre-processing. In all cases we find strong evidence that, in the period 2016-2021 the three time series show two cointegrating relationships and therefore share a common stochastic trend. In addition, a low correlation between Bitcoin and S&P 500 is detected. These finding justify the increased interest of investors in Bitcoin as an alternative asset class. The economic interpretation is that the stock valuation is primarily determined by financial phenomena, in particular the availability of large quantity of money. Money supporting investment is due both to the actions of Quantitative Easing and to the exchange of creditor/debtor role that took place between households and firms. The price of both Bitcoin and stocks is increasingly influenced by the amount of money in circulation and follows the same stochastic trend.

Suggested Citation

  • Marco Patacca & Sergio Focardi, 2021. "The Quantitative Easing Bursts Bitcoin Price," Accounting and Finance Research, Sciedu Press, vol. 10(3), pages 1-65, August.
    • Handle: RePEc:jfr:afr111:v:10:y:2021:i:3:p:65
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    References listed on IDEAS

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    1. Olivier Scaillet & Adrien Treccani & Christopher Trevisan, 2020. "High-Frequency Jump Analysis of the Bitcoin Market," Journal of Financial Econometrics, Oxford University Press, vol. 18(2), pages 209-232.
    2. Yongkil Ahn & Dongyeon Kim, 2020. "Sentiment disagreement and bitcoin price fluctuations: a psycholinguistic approach," Applied Economics Letters, Taylor & Francis Journals, vol. 27(5), pages 412-416, March.
    3. Böing, Tobias & Stadtmann, Georg, 2016. "Money growth and aggregate stock returns," Discussion Papers 390, European University Viadrina Frankfurt (Oder), Department of Business Administration and Economics.
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    Cited by:

    1. David Cerezo S'anchez, 2022. "Zero-Knowledge Optimal Monetary Policy under Stochastic Dominance," Papers 2210.06139, arXiv.org.

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    More about this item

    JEL classification:

    • R00 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General - - - General
    • Z0 - Other Special Topics - - General

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