SHOULD BITCOIN BE HELD UNDER THE U.S. PARTISAN CONFLICT?

Abstract

This paper probes the interrelationship between Bitcoin price (BP) and the U.S. partisan conflict (PC) by performing the bootstrap full- and sub-sample Granger causality tests. The positive influence from PC to BP reveals that Bitcoin can be considered as a tool to avoid the uncertainty caused by the rise in PC. However, this view cannot be supported by the negative impact, the major reason is that the burst of bubble undermines the hedging ability of Bitcoin. The above results are inconsistent with the intertemporal capital asset pricing model (ICAPM), underlining that high PC may drive BP to rise, in order to compensate for the losses and costs from factionalism. Conversely, BP has a negative impact on PC, suggesting that the U.S. political situation can be reflected by the Bitcoin market. Under the circumstance of the fiercer factionalism in the U.S., this investigation can benefit investors and related authorities.