Does Economic Policy Uncertainty Affect Cryptocurrency Markets? Evidence from Twitter-Based Uncertainty Measures

Abstract

Using the daily frequency data for the period from August 9, 2015, to July 7, 2020, this paper re-examines the effects of the Economic Policy Uncertainty (EPU) on returns of four cryptocurrencies: Bitcoin, Ethereum, Litecoin, and Ripple. For this purpose, two new measures of the EPU (Twitter-based Economic Uncertainty and Twitter-based Market Uncertainty) are considered. The results from the Granger Causality test with the Recursive Evolving Window approach show that there is a significant causality from the Twitter-based EPU to the BTC/USD from October 2016 to July 2017. Besides, there is a significant causality from the EPU to the ETH/USD from June 2019 to February 2020, as well as from the EPU to the XRP/USD from January 2020 to February 2020. Mainly, the Twitter-based EPU measures positively affect the returns of related cryptocurrencies during these periods. These results are robust to consider different measures of the Twitter-based uncertainty as well as to apply different econometric techniques. Potential implications, including the COVID-19 era, are also discussed.