Abstract
This paper explores how fear sentiment affects the price of Bitcoin by employing the rolling-window Granger causality tests. The analysis reveals negative influences from the volatility index (VIX) to Bitcoin price (BTC), which ascertains that Bitcoin can not be considered a haven in fear sentiment. Due to the liquidity in economic downside risks, BTC may decrease with high VIX to hedge losses, increasing during low VIX periods. The empirical results conflict with the intertemporal capital asset pricing model, which underlines that the increasing VIX can promote the price of Bitcoin. In turn, BTC positively impacts VIX, which shows that Bitcoin price can be treated as the main indicator for a more comprehensive analysis of the fear index. Under severe global uncertainty and changeable fluctuation of market sentiment, investors can optimize investment decisions based on market fear sentiment. The government can also consider VIX to grasp the trend of BTC to participate in cryptocurrency speculation effectively.
Highlights
This paper aims to discuss the interaction between fear sentiment and cryptocurrencies, to ascertain how Bitcoin prices (BTC) behave during a turbulent period of panic
This paper discusses whether Bitcoin should be regarded as a safe haven in fear sentiment by evaluating the causal interaction between volatility index (VIX) and BTC
The full-sample causality test results indicate that no apparent correlation can be found, this result is not credible because the parameter instability is not considered
Summary
This paper aims to discuss the interaction between fear sentiment and cryptocurrencies, to ascertain how Bitcoin prices (BTC) behave during a turbulent period of panic. As the first cryptocurrency to be traded, is created by Satoshi Nakamoto in 2008 (Harvey, 2014). The surge of Bitcoin prices and the huge increase in the associated market’s capitalization attract many investors (Kristoufek, 2015). Bitcoin has become a hot topic in finance, especially when considering investment sentiment. Since Keynes (1936) invented the “animal spirits,” investor sentiment has been an elusive concept, attracting market participants’ widespread attention. The classical financial theory presents that the competition between rational investors determines the equilibrium asset price
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