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Cryptocurrency Responses to U.S. Monetary Policy Shocks: A Data-Driven Exploration of Price and Volatility Patterns

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  • Eugene Msizi Buthelezi

Abstract

This study addresses a critical gap by providing an in-depth examination of how cryptocurrency markets respond to U.S. monetary policy shocks at various price levels. This study contributes significantly to our understanding of the nuanced dynamics governing cryptocurrency markets under diverse monetary policy conditions, thereby enhancing our knowledge of the broader financial ecosystem. Through rigorous quantitative analysis, we utilize monthly time series data spanning from January 2015 to December 2023 and employ models such as Markov-switching dynamic regression, Autoregressive Conditional Heteroskedasticity, and Generalized Autoregressive Conditional Heteroskedasticity. This study reveals that monetary policy shocks result in a decrease in cryptocurrency prices and volatility. Moreover, monetary policy tightening stabilizes the market at low cryptocurrency prices. In higher price states, interest rate increases are associated with reduced cryptocurrency prices and volatility. The findings suggest that changes in interest rates influence the opportunity cost of holding cryptocurrencies, impacting their appeal compared with traditional interest-bearing assets.

Suggested Citation

  • Eugene Msizi Buthelezi, 2025. "Cryptocurrency Responses to U.S. Monetary Policy Shocks: A Data-Driven Exploration of Price and Volatility Patterns," The American Economist, Sage Publications, vol. 70(1), pages 94-119, March.
    • Handle: RePEc:sae:amerec:v:70:y:2025:i:1:p:94-119
    DOI: 10.1177/05694345241269036
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