Department of Economics

Investigating Changes in Bitcoin Price Dynamics Following Covid-19

Research completed by Sean Lytle

Abstract: Cryptocurrencies are rapidly becoming integrated into our existing financial structures. While many studies have investigated Bitcoin, by far the largest cryptocurrency, not much work has been done in regard to Bitcoin’s reaction in the wake of the Covid-19 pandemic. Using a distributed lag model and price data on the currently understood price predictors obtained through the Nasdaq and Google Trends website, this paper tests Bitcoin’s price determinants for structural changes following the pandemic. The findings indicate that there was no structural change in Bitcoin’s price directly after the pandemic. This implies that Bitcoin could be resistant to some of the exogenous shocks that usually disturb traditional markets. Additionally, there is strong evidence of a structural change occurring much later, around the end of 2020. This change took place predominantly in the relationship between Bitcoin price and Bitcoin volume. One possible explanation for this is that the availability of cryptocurrencies to the average consumer has been increasing rapidly since 2017. This along with the first stimulus payments going out around the same time as the identified break could be the main reasons for this structural change, though this is largely conjectural.