The ripple effects of CBDC-related news on Bitcoin returns: Insights from the DCC-GARCH model

Central bank digital currencies (CBDCs) have emerged as a potential substitute for current payment methods, and, as such, major announcements, events and policy discussions regarding CBDCs have the potential to influence cryptocurrency returns. In light of this, the present study undertakes an in-de...

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Bibliographic Details
Published in:Research in international business and finance 2023-10, Vol.66, p.102060, Article 102060
Main Authors: Akin, Isik, Khan, Muhammad Zubair, Hameed, Affan, Chebbi, Kaouthar, Satiroglu, Hakan
Format: Article
Language:English
Subjects:
Bitcoin
CBDC attention index
CBDC uncertainty index
Central Bank Digital Currency (CBDC)
Cryptocurrencies
Time series
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Summary:Central bank digital currencies (CBDCs) have emerged as a potential substitute for current payment methods, and, as such, major announcements, events and policy discussions regarding CBDCs have the potential to influence cryptocurrency returns. In light of this, the present study undertakes an in-depth analysis of the CoinMarketCap data between August 1, 2017 and April 1, 2022 by implementing the dynamic conditional correlation-generalized autoregressive conditional heteroskedasticity (DCC-GARCH) model. The study reveals a noteworthy influence of news and events related to CBDCs on Bitcoin returns. Precisely, CBDC uncertainty index and CBDC attention index have resulted in significant fluctuations in Bitcoin returns, indicating that positive news can result in significant Bitcoin returns. The findings suggest that future expectations of investors regarding cryptocurrencies are shaped by CBDC-related news and events. [Display omitted] •We investigate the association between CBDC Index and bitcoin returns by employing DCC- Garch model on data from 1/08/2017–1/04/2022.•We use two available Central Bank Digital Currency (CBDC) indices: CBDC Uncertainty and CBDC Attention indices.•CBDC indices have a positive relationship with the bitcoin returns.•Ethereum and Binance Coin return has a statistically significant positive influence on bitcoin returns.
ISSN:0275-5319
DOI:10.1016/j.ribaf.2023.102060