Testing for asymmetric nonlinear short- and long-run relationships between bitcoin, aggregate commodity and gold prices

Abstract

Unlike prior studies, this study examines the nonlinear, asymmetric and quantile effects of aggregate commodity index and gold prices on the price of Bitcoin. Using daily data from July 17, 2010 to February 2, 2017, we employed several advanced autoregressive distributed lag (ARDL) models. The nonlinear ARDL approach was applied to uncover short-and longrun asymmetries, whereas the quantile ARDL was applied to account for a second type of asymmetry, known as the distributional asymmetry according to the position of a dependent variable within its own distribution. Moreover, we extended the nonlinear ARDL to a quantile framework, leading to a richer new model, which allows testing for distributional asymmetry while accounting for short-and long-run asymmetries. Overall, our results indicate the possibility to predict Bitcoin price movements based on price information from the aggregate commodity index and gold prices. Importantly, we report the nuanced result that most often the relations between bitcoin and aggregate commodity, on the one hand, and between bitcoin and gold, on the other, are asymmetric, nonlinear, and quantiles-dependent, suggesting the need to apply non-standard cointegration models to uncover the complexity and hidden relations between Bitcoin and asset classes.

An Analysis of Bitcoin’s Price Dynamics

“…In addition, the volatility in the price of Bitcoin is unlike any of the two commodities, making it difficult to compare. However, our findings are much in line with the recent study of Bouri et al (2018b), who find no effects of an aggregate commodity index and gold prices on the price of Bitcoin.…”

“…As long as the OLS assumptions are fulfilled, the ARDL approach will yield consistent estimates. This procedure is also followed by Ciaian et al (2016) and Bouri et al (2018b).…”

Seeking a Chaotic Order in the Cryptocurrency Market

“…Al-Yahyae et al [41] compared the multifractality properties of bitcoin compared to gold, stock, and global currency markets and their findings show that the bitcoin market is the most inefficient compared to others. In a similar study, Bouri et al [42] also tested for nonlinear short-term and long-term relationships between bitcoin, aggregate commodity, and gold prices. Khuntia and Pattanayak [43] considered the adaptive market hypothesis and evolving return predictability in the bitcoin market.…”

Is the status of gold threatened by Bitcoin?

“…Some studies have supported the hedging ability of Bitcoin (Aggarwal, Santosh, & Bedi, 2018;Gkillas & Longin, 2019;Shahzad, Elie, David, Ladislav, & Brian, 2019), while others have reported that gold can perform better than Bitcoin to hedge risks (Al-Yahyaee, Mensi, & Yoon, 2018;Klein, Hien, & Walther, 2018;Kub at, 2015). Additionally, they have underscored that there is an influence from GP to BCP or vice versa (Bouri, Gupta, Lahiani, & Shahbaz, 2018;Obryan, 2019;Zhu, Dickinson, & Li, 2017). However, it can be obviously observed that mutual influences exist in these two variables; thus, one-way influence cannot reflect the relationship between Bitcoin and gold markets.…”