Bitcoin: a Ponzi scheme or an emerging inflation-fighting asset?
Abstract
Under the dual impact of the COVID-19 pandemic and the Russian-Ukrainian conflict, the excessive stimulation of monetary policy continuously pushes up global inflation (INF). Therefore, this article explores whether Bitcoin can serve as a safe haven for INF. We apply the rolling-window Granger causality test to solve the issue of parameter instability in vector autoregression (VAR) systems and investigate the time-varying interaction between INF and Bitcoin price (BP). The negative influence of INF on BP means a high inflation shock causes BP to decline, indicating that Bitcoin cannot be a safe asset against INF. This is because investors have decreased their willingness to hold Bitcoin under the high INF expectations and cause BP to fall. This finding is not supported by the Intertemporal Capital Asset Pricing Model, emphasising that INF positively impacts BP. Conversely, BP has positive and negative impacts on INF. The positive effect highlights the effectiveness of Bitcoin in predicting INF fluctuations, but economic factors could undermine this effectiveness. In the context of economic stagnation and market turmoil, investors can adjust their portfolio investments based on Bitcoin. The government should utilise the trend of BP to regulate the dynamics of INF to reduce uncertainty in the financial system.
First published online 30 August 2024
Keyword : Bitcoin price, inflation, rolling-window, causal relationship
How to Cite
Liu, F., Su, C. W., Qin, M., & Umar, M. (2024). Bitcoin: a Ponzi scheme or an emerging inflation-fighting asset?. Technological and Economic Development of Economy, 1-21. https://doi.org/10.3846/tede.2024.19300
This work is licensed under a Creative Commons Attribution 4.0 International License.
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Güler, D. (2021). The impact of investor sentiment on bitcoin returns and conditional volatilities during the era of Covid-19. Journal of Behavioral Finance, 6, 1–14. https://doi.org/10.1080/15427560.2021.1975285
Hanson, B. E. (1992). Tests for parameter instability in regressions with I(1) processes. Journal of Business and Economic Statistics, 20(1), 45–59. https://doi.org/10.1198/073500102753410381
Jordà, Ò., Liu, C., Nechio, F., & Rivera-Reyes, F. (2022). Why is US inflation higher than in other countries? FRBSF Economic Letter, 2022(7), 1–6.
Karau, S. (2021). Monetary policy and Bitcoin (Deutsche Bundesbank Discussion Paper. No. 41/2021). SSRN. https://doi.org/10.2139/ssrn.3988527
Krause, M. (2016). Bitcoin: Implications for the developing world (CMC Senior Theses. 1261). Claremont McKenna College, Claremont, CA.
Krivoruchko, S., Ponamorenko, V., & Nebera, A. (2018). Central bank policy and cryptocurrencies. Journal of Reviews on Global Economics, 7, 549–561. https://doi.org/10.6000/1929-7092.2018.07.51
Lally, N., Kay, K., & Thatcher, J. (2022). Computational parasites and hydropower: A political ecology of Bitcoin mining on the Columbia River. Environment and Planning E: Nature and Space, 5(1), 18–38. https://doi.org/10.1177/2514848619867608
Li, Z. Z., Tao, R., Su, C. W., & Lobont, O. R. (2019). Does Bitcoin bubble burst? Quality & Quantity, 53(2), 91–105. https://doi.org/10.1007/s11135-018-0728-3
Lyócsa, Š., Molnár, P., Plíhal, T., & Širaňová, M. (2020). Impact of macroeconomic news, regulation and hacking exchange markets on the volatility of bitcoin. Journal of Economic Dynamics and Control, 119, Article 103980. https://doi.org/10.1016/j.jedc.2020.103980
Ma, C., Tian, Y., Hsiao, S., & Deng, L. (2022). Monetary policy shocks and Bitcoin prices. Research in International Business and Finance, 62, Article 101711. https://doi.org/10.1016/j.ribaf.2022.101711
Marmora, P. (2022). Does monetary policy fuel bitcoin demand? Event-study evidence from emerging markets. Journal of International Financial Markets, Institutions and Money, 77, Article 101489. https://doi.org/10.1016/j.intfin.2021.101489
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