The relationship between Bitcoin returns and trade policy uncertainty

Abstract

This paper investigates the relationship between the returns of Bitcoin and the index of trade policy uncertainty (TPI) in the United States (USA) in the period of July 2010-August 2018. The paper implements the Wavelet Power Spectrum (WPS), the Wavelet Coherency (WTC), and the Cross-Wavelet (XWT) techniques. There is a positive correlation between the related variables. However, the findings indicate that there are significant regime changes in both Bitcoin returns and the TPI during the periods of 2010-11 and 2017-18. In addition, there is a significant and negative causal relationship that runs from the TPI to the returns of Bitcoin during the related periods. Overall, the paper finds that trade policy uncertainty significantly and negatively affects the Bitcoin returns during the periods of regime changes.