Abstract
The role of currency in the functioning of the global economy is undeniably of utmost importance to people and governments, whose trust in monetary authorities is the sole provider of value to most of the world’s money which is in the form of fiat currencies. An alternative means of value exchange called cryptocurrencies operating entirely through the internet has the potential to dilute public trust in fiat currencies due to many advantages including fiscal decentralization among others. This study examines the relationship between key macroeconomic variables namely bond prices, dollar exchange rates and the price of gold and its derivatives and cryptocurrency trading in the Indian context. The daily frequency data is collected after the Indian Supreme Court’s judgement in March 2020 which overturned a ban on cryptocurrencies which was imposed before it. We aggregated the data using Principal Component Analysis and examined the short-run and long-run relationship between the variables and cryptocurrency trading using Toda Yamamoto Granger Causality Tests and ARDL Error Correction Model. The results reveal valuable insights about public perception of cryptocurrencies either as an investment asset or as a medium of exchange by examining the significance of individual independent variables in both the long and short run.
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