Determinants of the Bitcoin Performance during the COVID-19 Pandemic Period: How Can We Measure the Fear?

Abstract

The purpose of this paper is to present a behavioral analysis on the impact of the pandemic on BitCoin (BTC) prices. How fear of COVID-19 influenced risk aversion on the part of the investors and BTC performance during the period 31.12.2019-30.09.2020. Most early studies that examine the influence of the pandemic on asset prices use as an explanatory variable the number of new cases. In this study, we show that the number of cases is not the appropriate variable to explain the BTC prices. In order to quantitatively include a fear index into our analysis, we employ a code which is based on the Google searches which include the term “Coronavirus”. The higher the index, the more the fear due to the pandemic. The empirical findings confirm our assumptions that the newly suggested fear index explains the BTC performance with increase statistical significance, and that the number of cases is not the most appropriate variable to explain the BTC prices during the examined period. The methodology and the outcome of our study could be useful to investors, practitioners and scholars whose intention is to examine how asset prices, BTC prices in our case, perform during periods of high stress.