Abstract:

Purpose - The study aims to identify the volatility dynamics of Bitcoin, which has the highest volume of transactions from cryptocurrencies with significant price volatility, and to identify the regimes that rise/winning and fall/loss Bitcoin returns, the possibilities of regime transition and the periods of stay in the regime. Method - The study used the Markov Regime Change Model, which allows for the calculation of the rise/winning and fall/lose regimes of Bitcoin returns, the possibilities of regime transition and the duration of stay in the regime, both the changes and the possibilities of regime transition. The findings - The study found that the most suitable model for the Bitcoin revenue series was the three-regime MSIH(3)-AR(1) model. When the model is analyzed, it appears that the model gives stronger results than the linear model. In the model of three regimes, the rate is negative, the regime 1 indicates the period of the reduction regime, the regime 2 indicates the positive and the regime 3 indicates the period of the expansion regime. While the Bitcoin revenue series is in one regime, the chances of staying in the same regime are high in the next period, the chances of passing from regime 1 to other regimes are low in the next period, especially from regime 1 to other regimes. Debate - The study has found that the durability of the regime of Bitcoin returns for the period discussed in the framework of the study is high. In this context, if investors know in which regime the Bitcoin returns were in the examined period, it is possible to make the investment decision accordingly by predicting the possibility of remaining in that regime in the next period. However, considering the low duration of stay in average regimes, it seems that active investors, especially those who hold Bitcoin in their portfolios, will have the opportunity to increase the profit of their portfolios if this tool continuously follows regime changes.

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