The COVID-19 pandemic and Bitcoin: Perspective from investor attention

Abstract

The response of the Bitcoin market to the novel coronavirus (COVID-19) pandemic is an example of how a global public health crisis can cause drastic market adjustments or even a market crash. Investor attention on the COVID-19 pandemic is likely to play an important role in this response. Focusing on the Bitcoin futures market, this paper aims to investigate whether pandemic attention can explain and forecast the returns and volatility of Bitcoin futures. Using the daily Google search volume index for the “coronavirus” keyword from January 2020 to February 2022 to represent pandemic attention, this paper implements the Granger causality test, Vector Autoregression (VAR) analysis, and several linear effects analyses. The findings suggest that pandemic attention is a granger cause of Bitcoin returns and volatility. It appears that an increase in pandemic attention results in lower returns and excessive volatility in the Bitcoin futures market, even after taking into account the interactive effects and the influence of controlling other financial markets. In addition, this paper carries out the out-of-sample forecasts and finds that the predictive models with pandemic attention do improve the out-of-sample forecast performance, which is enhanced in the prediction of Bitcoin returns while diminished in the prediction of Bitcoin volatility as the forecast horizon is extended. Finally, the predictive models including pandemic attention can generate significant economic benefits by constructing portfolios among Bitcoin futures and risk-free assets. All the results demonstrate that pandemic attention plays an important and non-negligible role in the Bitcoin futures market. This paper can provide enlightens for subsequent research on Bitcoin based on investor attention sparked by public emergencies.

Tracing Knowledge Diffusion Trajectories in Scholarly Bitcoin Research: Co-Word and Main Path Analyses

“…The three studies following Almeida and Gonçalves (2023a) further explore the influence of factors such as the COVID-19 pandemic, hedging, and trading behaviors on cryptocurrency returns. Wan et al (2023) focus on the impacts of the COVID-19 pandemic on bitcoin and propose that pandemic attention, measured by Google search volume for the keyword "coronavirus", significantly influences bitcoin returns and volatility. The study suggests that heightened pandemic attention led to decreased bitcoin returns and increased volatility and also improved the prediction of bitcoin returns and volatility.…”