A Study of Uncertainty Contribution to Cryptocurrency Investment Dynamics

Abstract

We investigate the interrelation between the economic policy uncertainty index and composite cryptocurrency index to contribute to the contemporary discussion and verify the available results of other researchers. Our research objective is to verify the hypothesis about the positive correlation between uncertainty and cryptocurrency price with regard to the previously published results. We employ a trailing correlation and linear regression of data at different lags to find evidence of co-movement and, if found, to determine the nature of cryptocurrency investment—a safe haven or abnormal return-seeking venture. We employ the most recent data (ending May 2021) and come to a conclusion that requires revisiting the known findings, as our results at earlier levels in the time series follow the mainstream, while the most recent data prove them wrong. The major conclusion made upon completion of the analysis is that there is no reliable correlation between economic policy uncertainty and cryptocurrency exchange rates, which could have practical usability.

Keywords

• cryptocurrency
• risk prediction
• trailing correlation
• uncertainty index