The impact of ECB's Quantitative Easing on cryptocurrency markets during times of crisis
The impact of ECB's Quantitative Easing on cryptocurrency markets during times of crisis
In this paper, we investigate non-linear linkages between Bitcoin and the unconventional monetary policies of the European Central Bank (ECB). In particular, we examine whether a low-interest rate environment resulting from QE indirectly encourages investors to move towards Bitcoin. Using a Bayesian VAR model with time-varying coefficients and stochastic volatility (TVP-BVAR-SV model), we compare Bitcoin's responses to the shadow rate shocks during the pre-and post-COVID-19 periods. Moreover, despite the high uncertainty and the low-interest rate environment, Bitcoin's response during the COVID-19 period reveals a steeper drop compared to the pre-COVID-19 period. That said, investors did not resort to Bitcoin for safety and higher returns. Our findings can be attributed to the unprecedented nature of the crisis, the investor reluctance and pessimism, and the changing behavior of Bitcoin, which is no longer perceived as a safe haven.
Bitcoin, COVID-19, ECB, Investor sentiment, Quantitative Easing, Shadow rate, Stochastic volatility, TVP-BVAR-SV model
Aloui, Donia
b779d554-431c-41bc-84e7-65fec40c8dcf
Zouaoui, Riadh
9750811b-2120-4839-ad1b-cb0ef469ede9
Rachdi, Houssem
f7537086-ae50-47af-a808-f18b98428030
Guesmi, Khaled
0362af4a-7579-4d45-8fbd-1e0293fdec3d
Yarovaya, Larisa
2bd189e8-3bad-48b0-9d09-5d96a4132889
11 January 2024
Aloui, Donia
b779d554-431c-41bc-84e7-65fec40c8dcf
Zouaoui, Riadh
9750811b-2120-4839-ad1b-cb0ef469ede9
Rachdi, Houssem
f7537086-ae50-47af-a808-f18b98428030
Guesmi, Khaled
0362af4a-7579-4d45-8fbd-1e0293fdec3d
Yarovaya, Larisa
2bd189e8-3bad-48b0-9d09-5d96a4132889
Aloui, Donia, Zouaoui, Riadh, Rachdi, Houssem, Guesmi, Khaled and Yarovaya, Larisa
(2024)
The impact of ECB's Quantitative Easing on cryptocurrency markets during times of crisis.
Research in International Business and Finance, 69, [102203].
(doi:10.1016/j.ribaf.2023.102203).
Abstract
In this paper, we investigate non-linear linkages between Bitcoin and the unconventional monetary policies of the European Central Bank (ECB). In particular, we examine whether a low-interest rate environment resulting from QE indirectly encourages investors to move towards Bitcoin. Using a Bayesian VAR model with time-varying coefficients and stochastic volatility (TVP-BVAR-SV model), we compare Bitcoin's responses to the shadow rate shocks during the pre-and post-COVID-19 periods. Moreover, despite the high uncertainty and the low-interest rate environment, Bitcoin's response during the COVID-19 period reveals a steeper drop compared to the pre-COVID-19 period. That said, investors did not resort to Bitcoin for safety and higher returns. Our findings can be attributed to the unprecedented nature of the crisis, the investor reluctance and pessimism, and the changing behavior of Bitcoin, which is no longer perceived as a safe haven.
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Accepted/In Press date: 19 December 2023
e-pub ahead of print date: 21 December 2023
Published date: 11 January 2024
Keywords:
Bitcoin, COVID-19, ECB, Investor sentiment, Quantitative Easing, Shadow rate, Stochastic volatility, TVP-BVAR-SV model
Identifiers
Local EPrints ID: 493765
URI: http://eprints.soton.ac.uk/id/eprint/493765
ISSN: 0275-5319
PURE UUID: fbffb2fc-e024-4a39-8d68-f876054bc7e8
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Date deposited: 12 Sep 2024 16:40
Last modified: 13 Sep 2024 01:58
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Contributors
Author:
Donia Aloui
Author:
Riadh Zouaoui
Author:
Houssem Rachdi
Author:
Khaled Guesmi
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