Analysing the interrelationship between Bitcoin price and it’s energy consumption

Abstract

An increasing trend in cryptocurrency prices shows the investors’ attention towards digital currency, but the carbon emission effect due to cryptocurrency is also gaining importance. However, no study has investigated the relationship between these two variables. The study’s objective is to investigate the relationship between Bitcoin energy consumption and the prices of Bitcoin. This paper uses Johansen’s cointegration test, the Vector error correction model, Granger’s causality, Impulsive response, and variance decomposition on daily frequency data. It indicates the existence of long-run cointegration between energy consumption and Bitcoin prices. On the other hand, VEC Granger causality indicates that one time series does not cause the other one and vice versa. Variance decomposition and impulsive response function also indicate that shocks in energy consumption insignificantly affect the Bitcoin prices and vice versa. Policymakers and regulators should pay attention to renewable energy resources in cryptocurrency mining.

Keywords

• cryptocurrency
• bitcoin
• energy consumption
• vector error correction model
• integration