Introduction
This research examines the relative volatility of Bitcoin price indices, the Dow Jones Industrial Average, and the CSI 300 Index using detrended ratio tests. Findings indicate that the Bitcoin market exhibits higher risk and speculation compared to U.S. and Chinese stock markets. Using the "shutdown of Bitcoin China trading platforms" as a reference event, a Vector Autoregression (VAR) model analyzes dynamic interactions among user numbers, Baidu search volume, media attention, Bitcoin prices, and trading volumes before and after policy interventions. The study reveals that these relationships shift under regulatory influence. As a technological innovation and financial product, Bitcoin presents unique financial regulation challenges. Key insights suggest user engagement and public consensus drive Bitcoin's economic value.
Keywords: Financial Risk, Policy Intervention, VAR, Financial Regulation
Research Background
Since its inception, Bitcoin's innovative issuance mechanism and extreme price volatility have attracted academic and industry attention. Existing literature primarily explores:
- Investor Sentiment Indicators – Google Trends, Wikipedia visits, Twitter mentions (Garcia et al., 2014).
- Technical Factors – Hash rate impacts on long-term price trends (Bouoiyour & Selmi, 2015).
- Market Behavior – Herding effects and speculative bubbles (Deng, 2017; Liu et al., 2015).
Research Gaps:
- Overemphasis on price over trading volume.
- Limited metrics for Chinese investor interest.
- Scarce regulatory-focused empirical studies.
👉 Explore Bitcoin market trends
Methodology
Data Selection
- Period: January 1, 2013 – August 12, 2018 (2,050 daily observations).
Variables:
- Dependent: Bitcoin Price Index (BPI), Daily Trading Volume (VOL).
- Independent: Search Volume (SEARCH), Media Attention (NEWS), User Count (USER).
- Benchmarks: DJIA (U.S.) and CSI 300 (China) for volatility comparison.
Event Segmentation
- Pre-Event: January 1, 2013 – September 30, 2017 (China’s trading ban).
- Post-Event: October 1, 2017 – August 12, 2018.
Key Findings
1. Bitcoin vs. Stock Market Volatility
- Detrended Ratio Analysis:
| Market | Standard Deviation |
|-----------------|--------------------|
| Bitcoin | 0.6214 |
| U.S. Stocks | 0.0355 |
| Chinese Stocks | 0.1110 | - Bitcoin’s volatility was 17× higher than U.S. stocks and 6× higher than Chinese stocks.
2. VAR Model Insights (Granger Causality)
Pre-Event:
- Bidirectional causality between NEWS and RETURN.
- USER% and SEARCH influenced RETURN unidirectionally.
Post-Event:
- SEARCH remained a significant predictor of RETURN.
- USER% and NEWS lost impact on VOL.
👉 Understand crypto volatility
FAQs
Q1: Why does Bitcoin show higher volatility than stocks?
A: Bitcoin’s decentralized nature, speculative trading, and lower liquidity amplify price swings compared to regulated equity markets.
Q2: How do policy changes affect Bitcoin metrics?
A: Regulatory actions (e.g., trading bans) disrupt user engagement metrics, altering price and volume correlations.
Q3: What drives Bitcoin’s long-term value?
A: Network effects, technological adoption, and collective consensus underpin its economic viability beyond short-term speculation.
Conclusion
This study highlights Bitcoin’s speculative risks and regulatory sensitivities, advocating for adaptive oversight frameworks. Future research could explore cross-border policy harmonization and investor protection mechanisms in cryptocurrency markets.