Bitcoin and money supply relationship: An analysis of selected country economies

Nilcan Mert; Mustafa Caner Timur; Nilcan Mert; Mustafa Caner Timur

doi:10.3934/QFE.2023012

Quantitative Finance and Economics

2023, Volume 7, Issue 2: 229-248. doi: 10.3934/QFE.2023012

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Bitcoin and money supply relationship: An analysis of selected country economies

Nilcan Mert ^,,
Mustafa Caner Timur

Department of Economics, Ardahan University, Yenisey Campus, Çamlıçatak, Ardahan 75002, Turkey

Received: 15 February 2023 Revised: 02 May 2023 Accepted: 08 May 2023 Published: 18 May 2023
JEL Codes: E42, E51, E58, C11, C15

Bitcoin has become quite known after the 2008 economic crisis and the COVID-19 health crisis. For some, these cryptocurrencies constitute rebellion against the existing system as governments encourage uncontrolled expansions in the money supply; for some others, it is a quick source of income. Undeniably, the volume of the crypto money market has grown considerably in recent years, regardless of the reasoning of the people who invest and trade in this field. At this point, one of the most important questions to be investigated is "what variables have caused the tremendous growth in the crypto money quantities in recent years?" This study tests the assumption that changes in cryptocurrencies are affected by changes in national currencies. Thus, the Bitcoin price is the dependent variable, and M1 monetary supply changes in the USA, European Union and Japanese economies are considered independent variables. The variables in this study were tested using the time-varying Granger causality method. The results obtained from this study confirm the philosophy of Bitcoin's emergence and the possibility that it can be a hedge against the inflationary effects of money, especially after the COVID-19 pandemic.
- monetary systems,
- money supply,
- central banks policies,
- bayesian-var,
- time-varying Granger causality,
- subsample Wald tests
Citation: Nilcan Mert, Mustafa Caner Timur. Bitcoin and money supply relationship: An analysis of selected country economies[J]. Quantitative Finance and Economics, 2023, 7(2): 229-248. doi: 10.3934/QFE.2023012

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Abstract

Bitcoin has become quite known after the 2008 economic crisis and the COVID-19 health crisis. For some, these cryptocurrencies constitute rebellion against the existing system as governments encourage uncontrolled expansions in the money supply; for some others, it is a quick source of income. Undeniably, the volume of the crypto money market has grown considerably in recent years, regardless of the reasoning of the people who invest and trade in this field. At this point, one of the most important questions to be investigated is "what variables have caused the tremendous growth in the crypto money quantities in recent years?" This study tests the assumption that changes in cryptocurrencies are affected by changes in national currencies. Thus, the Bitcoin price is the dependent variable, and M1 monetary supply changes in the USA, European Union and Japanese economies are considered independent variables. The variables in this study were tested using the time-varying Granger causality method. The results obtained from this study confirm the philosophy of Bitcoin's emergence and the possibility that it can be a hedge against the inflationary effects of money, especially after the COVID-19 pandemic.

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