Do crypto investors wait and see during policy uncertainty? An examination of the dynamic relationships between policy uncertainty and exchange inflows of Bitcoin

Abstract

PurposeIn this paper, the authors examine the short-term and long-term impact of general economic policy uncertainty (EPU) and crypto-specific policy uncertainty on Bitcoin’s (BTC) exchange inflows – a form of crypto investor behaviors that the authors expect to drive the cryptocurrency volatility.Design/methodology/approachThe authors use an autoregressive distributed lag (ARDL), coupled with the bounds testing approach by Pesaran et al. (2001), to analyze a weekly dataset of BTC’s exchange inflows and relevant policy uncertainty indices.FindingsThe authors observe both short-term and long-term impacts of the crypto-specific policy uncertainty on BTC’s exchange inflows, whereas the general EPU only explains these inflows in a short-term manner. In addition, the authors find exchange inflows of BTC “Granger” cause its price volatility. Furthermore, the authors document a significant and relatively persistent response of BTC volatility to shocks to its exchange inflows.Originality/valueThis study’s findings offer significant contributions to research in policy uncertainty and investor behaviors.