The Economic Effect of Bitcoin Halving Events on the U.S. Capital Market

Abstract

Bitcoin is a digital asset that was first mined in January 2009 after the global financial crisis of 2007–2008. Over a decade later, there is still no consensus across different market regulations on the classification, use cases, policies, and economic implications of bitcoin. However, there is an increasing demand for digital currency, as an alternative to fiat currency which would spur financial innovation and inclusion. This study reviews regulations on digital assets across countries. It further discusses some use cases for bitcoin to reduce financial risk and facilitate cross border transactions. The study also discusses challenges related to bitcoin such as: cryptocurrencies substitution, cross border financing, cyber risk and security, and benefits in terms of the effect of coronavirus on the speed of capital market innovation and hence bitcoin usage. The study concludes by examining the economic effect of bitcoin halving events on the U.S. capital market to better understand the influence of bitcoin on financial markets and key drivers of its intrinsic value. The empirical evidence from this study suggests that bitcoin halving events are associated with significant negative stock market reaction, signaling a trading tradeoff between cryptocurrencies and U.S. stock markets.