A research on interaction between bitcoin and foreign exchange rates

Abstract

Purpose - This study conducts an analysis to reveal the interaction between Bitcoin and Exchange Rates to find out whether Bitcoin is becoming a substitution for the exchange rates.Methodology - To investigate the mutually interaction between the exchange rates and the Bitcoin, the interaction (relationship) between daily closing price of both exchange rates and Bitcoin was analyzed through the Var model. Thus, it was tried to show the sensitivity of the values of Bitcoin to the changes occured in the exchange rates.Findings - Based on Variance Decomposition analysis, BITCOIN and Euro can be considered as largely external variables and their prices are not significantly affected by USD. An interesting result in this study is that the USD exchange rate was found to be significantly sensitive to the Euro.Conclusion - Findings obtained from analysis show that Bitcoin and Excange Rates have not become an alternative tools for each other yet.