Forecasting Bitcoin returns: is there a role for the US–China trade war?

Abstract

Previous studies have provided evidence that trade-related uncertainty tends to predict an increase in Bitcoin returns. In this paper, we extend the related literature by examining whether the information on the US–China trade war can be used to forecast the future path of Bitcoin returns, controlling for various explanatory variables. We apply ordinary least square (OLS) regression, support vector regression (SVR) and least absolute shrinkage and selection operator (LASSO) techniques that stem from the field of machine learning, and we find weak evidence of the role of the trade war in forecasting Bitcoin returns. Given that out-of-sample tests are more reliable than in-sample tests, our results tend to suggest that future Bitcoin returns are unaffected by trade-related uncertainties, and investors can use Bitcoin as a safe haven in this context.