Abstract
The increasing attention on Bitcoin since 2013 prompts the issue of possible evidence for a causal relationship between the Bitcoin market and internet attention. Taking the Google search volume index as the measure of internet attention, time-varying Granger causality between the global Bitcoin market and internet attention is examined. Empirical results show a strong Granger causal relationship between internet attention and trading volume. Moreover, they indicate, beginning in early 2018, an even stronger impact of trading volume on internet attention, which is consistent with the rapid increase in Bitcoin users following the 2017 Bitcoin bubble. Although Bitcoin returns are found to strongly affect internet attention, internet attention only occasionally affects Bitcoin returns. Further investigation reveals that interactions between internet attention and returns can be amplified by extreme changes in prices, and internet attention is more likely to lead to returns during Bitcoin bubbles. These empirical findings shed light on cryptocurrency investor attention theory and imply trading strategy in Bitcoin markets.
Highlights
Bitcoin is a decentralized digit currency introduced in 2008 by Satoshi Nakamoto, who has far kept their real identity unknown
In exploring the time-varying relationship between Bitcoin markets and internet attention as measured by Google search volume index (GSVI), we find that the Granger causal relationship between Bitcoin returns and internet attention apparently changes with time
Returns of Bitcoin prices strongly lead to changes in internet attention, while internet attention only occasionally affects Bitcoin returns
Summary
Bitcoin is a decentralized digit currency introduced in 2008 by Satoshi Nakamoto, who has far kept their real identity unknown. Recognized as the first established cryptocurrency, Bitcoin, as distinct from traditional currency, has no central bank or single administrator. Bitcoin transactions are verified by network nodes through cryptography and recorded in a publicly distributed ledger called a blockchain. This attracts attention among individuals who lack confidence in the global financial system (Yermack 2015). In the short history of Bitcoin, the 2009–2012 period has been dubbed its early “proof-ofconcept” stage with limited transactions and prices under $20. By the end of November 2013, a unit of Bitcoin was priced at more than $1,200, almost 100 times its value at the beginning of that year.
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