Assessing the Asymmetric Relationship between Global Economic Factors and Cryptocurrency: A Comparison between Normal Times and COVID-19 Times using the NARDL Model

Abstract

Stock markets, commodity markets, and cryptocurrency markets, have all been negatively affected with the onset of this pandemic covid-19, and the effects are far more intense than that any previous outbreaks. This paper not only aims at understanding the interaction of global economic factors with the digital currency bitcoin, but it also sheds light on the impact Covid-19 had on the relationship between bitcoin and global economic factors. In line with the objective of this study, the researcher determines the asymmetric relationship between global economic factors’ price, specifically gold price, crude oil price, stock index S & P price, and bitcoin price during the unprecedented times of Covid-19 using the Non-linear autoregressive distributed lags (NARDL model). Data was analysed for the period March 2014 to March 2021, employing descriptive statistics, unit roots testing, and NARDL model, aided by the statistical package EViews version 11.The findings reveal the presence of a statistically significant and asymmetric relationship between global economic factors and cryptocurrency during the covid-19 times, whilst before the strike of the pandemic, global economic factors were not significant to cryptocurrency as the results are insignificant. Howbeit, the overall model showcases mixed results since the significance of the asymmetric effect for the overall model is due to the significance of the asymmetric effect during covid-19. The relevant authorities as well as central banks are recommended to work closely together to enforce effective economic policies to mitigate the dreadful effects of the covid-19 pandemic without instilling uncertainty among investors thus gearing towards market recovery.