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Can Bitcoin hedge the risks of geopolitical events?

Author

Listed:
  • Su, Chi-Wei
  • Qin, Meng
  • Tao, Ran
  • Shao, Xue-Feng
  • Albu, Lucian Liviu
  • Umar, Muhammad

Abstract

This paper investigates the role of the Bitcoin currency, in avoiding and surpassing the risks that are associated with the global geopolitical events, and circumstances. For this purpose, we have performed the bootstrap full, and the sub-sample rolling-window Granger causality tests, in order to explore the mutual influences between geopolitical risks (GPR) and Bitcoin prices (BCP). We have found that there are positive and negative influences that stem from GPR towards BCP. In this regard, the positive impacts ascertain that the Bitcoin currency can be considered as an asset that is developed in order to avoid GPR. However, this view cannot be held constant and absolute, without considering the negative effects of such an arrangement. Moreover, it is noteworthy that these results are not supported by the Intertemporal Capital Asset Pricing Model (ICAPM), which highlights that BCP can be positively affected by GPR. On the flipside, there is a positive influence extended from BCP towards GPR, which suggests that the Bitcoin market is a leading indicator that can be used to analyze the global geopolitical environment more accurately and comprehensively. Therefore, in situations involving severe global uncertainty and complicated geopolitical patterns, investors can benefit from the Bitcoin market in order to optimize their investments during the periods where the GPR are higher. Moreover, governments can also adopt, accept and boost the trend of BCP by considering valid GPR, and further promote the advances in encryption technology. They can also strengthen their supervision, in order to promote a healthy development of the Bitcoin market, which in turn is a significant indicator of the macroeconomic and political trends across the globe.

Suggested Citation

  • Su, Chi-Wei & Qin, Meng & Tao, Ran & Shao, Xue-Feng & Albu, Lucian Liviu & Umar, Muhammad, 2020. "Can Bitcoin hedge the risks of geopolitical events?," Technological Forecasting and Social Change, Elsevier, vol. 159(C).
    • Handle: RePEc:eee:tefoso:v:159:y:2020:i:c:s0040162520310088
    DOI: 10.1016/j.techfore.2020.120182
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    More about this item

    Keywords

    Bitcoin price; Causal relationship; Geopolitical risks; Rolling-window;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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