Fear Sentiment, Uncertainty, and Bitcoin Price Dynamics: The Case of COVID-19

ABSTRACT

This paper studies the impact of fear sentiment caused by the coronavirus pandemic on Bitcoin price dynamics. We construct a new proxy for coronavirus fear sentiment using hourly Google search queries on coronavirus-related words. The results show that market volatility has been exacerbated by fear sentiment as the result of an increase in search interest in coronavirus. Moreover, we find that negative Bitcoin returns and high trading volume can be explained by fear sentiment regarding the coronavirus. Our results also show that Bitcoin fails to act as a safe haven during the pandemic.

KEYWORDS:

• Coronavirus
• Google search volume
• fear sentiment
• Bitcoin price dynamics

JEL CLASSIFICATION:

• G12
• G14
• G15

Notes

1. See https://coinmarketcap.com/.

2. See https://www.cryptocompare.com.

3. See http://www.google.com/trends.

4. See https://trends.google.com/trends/explore?date=2020-01-15%202020-04-24.

5. See https://www.who.int/csr/don/archive/disease/novel_coronavirus/en.

6. The null hypothesis of causality tests is that fear sentiment does not Granger cause a change in VIX, Bitcoin returns and trading volume, respectively.

7. Another way to conduct a robustness test is to perform the out-of-sample predictions, as described by Sharma, Phan, and Narayan (2019) and Narayan et al. (2020).

Additional information

Funding

Ningru Zhao would like to acknowledge financial support by the Applied Economics Department of Nanjing Audit University of the Priority Academic Program Development of Jiangsu Higher Education Institutions (Office of Jiangsu Provincial People’s Government, [No. [2018] 87]