The Impact of Covid-19 Pandemic on the Structural Relationship between Bitcoin Price and Macroeconomic Factors

Abstract

This thesis examines the factors affecting the price of bitcoin during Covid-19 pandemic. The study is divided into 2 periods: the pre covid-19 pandemic period (2018-2019) and the covid-19 pandemic period (2020-2021). Weekly data were used to test the impact of various economic factors, namely, gold price, crude oil WTI index, VIX volatility index, S&P500 index, Dow Jones index, Nasdaq index, US Dollar index and Fed Fund Rate. The testing was divided into four stages: (1) Stationarity Test, (2) Cointegration Test, (3) Error Correction Model, and (4) Granger Causality Test.

          The results indicate that the stationarity of all variables of the 2 periods are the mixture of both I(0) and I(1). Therefore, the Autoregressive Distributed Lag (ARDL) model is appropriate for testing the long-run Cointegration and short-run adjustment. In the period before the outbreak of the Covid-19 pandemic (2018 - 2019), it was found that Dow Jones Index, US Dollar index and Fed Fund Rate have significant impact on bitcoin price. While during the period of Covid-19 pandemic (2020 - 2021), it was found that gold price, WTI index, S&P500 index, Nasdaq index and US Dollar index have significant effect on bitcoin price. As for the estimation of Error Correction Model, it was found that, for the period prior to the Covid-19 pandemic (2018 - 2019), the system is able to adjust back to its long-run equilibrium at the rate of 11.98% of the disequilibrium in each period after the deviation. While during the period of Covid-19 pandemic (2020-2021), it was found that the system can adjust back to its long-run equilibrium at the rate of 30.51% of the disequilibrium in each period after the shock occurs.

          As for the test for structural change during Covid-18 period, it was found that the factors that involve significant changes in parameter estimates include gold price and Dow Jones Index.