Abstract
In the context of the debate on the role of cryptocurrencies in the economy as well as their dynamics and forecasting, this brief study analyzes the predictability of Bitcoin volume and returns using Google search values. We employed a rich set of established empirical approaches, including a VAR framework, a copulas approach, and non-parametric drawings, to capture a dependence structure. Using a weekly dataset from 2013 to 2017, our key results suggest that the frequency of Google searches leads to positive returns and a surge in Bitcoin trading volume. Shocks to search values have a positive effect, which persisted for at least a week. Our findings contribute to the debate on cryptocurrencies/Bitcoins and have profound implications in terms of understanding their dynamics, which are of special interest to investors and economic policymakers.
Highlights
It is difficult to make a prediction, about the future! yet this difficulty has not deterred the practice of forecasting
We employ a rich set of established empirical approaches
Cryptocurrencies, which are based on blockchain technology and are often called Bitcoin, have recently attracted a lot of debate in socio-economic and financial circles
Summary
It is difficult to make a prediction, about the future! yet this difficulty has not deterred the practice of forecasting. Predictions of future technological changes and their implications for the socio-economic and financial outlook are areas of research that have never lost their glitter. In the same vein, forecasting the dynamics of technology and its implications for financial asset prices and their returns have always been one of the most interesting aspects of research. Crypto or digital currency is an asset that only exists electronically. The most popular cryptocurrencies, such as Bitcoin, were designed for transactional purposes; they are often held for speculation in anticipation of a rise in their values (see Bank of England (2018) for detailed insight into digital currencies). Bitcoin is the most popular and used cryptocurrency, and in some cases, has been treated in tandem with conventional currencies (see Kristoufek and Vosvrda, 2016). Bitcoin came with controversy and there are doubts about its future, yet the popularity of cryptocurrencies has been increasing since their inception (Li and Wang, 2017)
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