Central Banks' Effect on Bitcoin Returns: An Event Study

Abstract

Bitcoin has become established in the financial system and has a volatile price development. Lacking trust in the financial system and monetary policy has led to increased adoption of Bitcoin. The regulation of Bitcoin can be hard to succeed with. The thesis will study the impact of central bank statements from ECB and FED on Bitcoin’s returns. ECB and FED speeches were analyzed using an event study to see their impact on the Bitcoin price from 2014 to 2022. Event classifications were positive, negative, and neutral. The abnormal returns were compared to a reference index based on MA150 and MA15 of the bitcoin price close to the event. Few observations had statistical significance. However, the speeches’ relevance and timing could most likely impact the abnormal returns. The impact of the statements can be questioned because other monetary policy tools probably impact Bitcoin’s returns more. The central bank credibility can be questioned due to Bitcoin’s purpose to counter the centralization of the financial systems. It is not possible to reject the null hypothesis, meaning it is not possible to say if the ECB and FED can impact Bitcoin’s returns with public statements, but the reason why is hard to define. Bitcoin’s relationship with the financial system and the difficulty to regulate it can impact who enters the market or incentivize further regulation. Future research includes studying, eg., demand and supply influencing factors such as energy prices or other monetary policy tools, regulations impacting Bitcoin as an asset instead of a currency, and by dividing the time period into smaller segments to factor in cyclic effects.