The effect of political and economic uncertainty on the cryptocurrency market

This article explores the effect of uncertainty on the cryptocurrency market. Previous work has been limited to analyzing the effect of uncertainty on Bitcoin. We depart from the previous literature by focusing on top 25 cryptocurrencies and find that the cryptocurrency market can serve as a strong hedge against geopolitical risks in most cases, but it could be considered a weak hedge and safe haven against economic policy uncertainty during a bull market. Notably, the cryptocurrency market reacts to uncertainty differently, depending on the type of uncertainty. Overall, our findings suggest that uncertainty is an essential determinant of cryptocurrency returns.

Automated summary

This study reveals that the cryptocurrency market can serve as a strong hedge against geopolitical risks in most cases, whereas it may not be effective against economic policy uncertainty during a bull market. The cryptocurrency market reacts differently to uncertainty depending on its type. Overall, uncertainty is shown to be a crucial determinant of cryptocurrency returns.