Abstract:

The aim of this study is to explore the dynamic relationship between Bitcoin and major currencies such as Euro/Dolar, British Sterling/Dolar, Canadian Dollar/Dolar, Japanese New/Dolar and Chinese Yuan/Dolar. In this context, the average and variance of causality test proposed by Hong (2001) was used to study the existence of the spread effect on the average and volatility between Bitcoin and exchange rates. Furthermore, Hong vd to explore the existence of the curve dependency between Bitcoin and exchange rates. Causal test was used in the risk cases recommended by (2009). By using daily data between 19 August 2011 and 6 August 2021, the one-way causal ratio of Euro, Pound and Canadian Dollar to Bitcoin was identified. On the other hand, the variance causality test results indicate that there is a double-directional gambling spread effect between Bitcoin and Euro and Pound. Furthermore, it has been determined that Yuan and Canadian Dollar are the cause of the variance of Bitcoin. The causality test results in risk situations provide evidence of the causality relationship from Euro and Pound to Bitcoin. However, unexpected losses in Bitcoin are the Granger cause of unexpected losses in Yen. In general, empirical results show that the Chinese currency is less integrated with Bitcoin.

Keywords:

Abstract:

The aim of this study is to examine the dynamic relationship between Bitcoin and major foreign exchange rates namely Euro, British Pound, Canadian Dollar, Japanese Yen, and Chinese Yuan. In this context, we employ the causality-in-mean and variance test suggested by Hong (2001) to examine the presence of mean and volatility spillover effects between Bitcoin and foreign exchange rates. Also, we use the causality-in-risks test proposed by Hong et al. (2009) to investigate the existence of tail dependence between Bitcoin and foreign exchange rates. By using daily data from August 19, 2011, through August 6, 2021, we find unidirectional Granger causality-in-mean from Euro, Pound, and Dollar to Bitcoin. On the other hand, causality-in-variance test results suggest a bidirectional volatility spillover effect between Bitcoin and Euro and Pound. Also, Yuan and Dollar are found to be Granger cause-in-variance of Bitcoin. Causality-in-risk test results provide evidence in favor of causal link running from Euro and Pound to Bitcoin. In addition, unexpected losses in Bitcoin are the Granger cause of unexpected losses in the Yen. Overall, our empirical analysis results show that the Chinese currency market seems to be less integrated with Bitcoin.