Modelling the Volatility in Bitcoin

Abstract

The increase in US interest rates, inflation in the UK and various countries, and geopolitical tensions such as war have contributed to a significant downturn in the US markets, subsequently affecting crypto investments. A research firm reported a 60% decrease in daily trading volumes within just four to five days during 2022. India's largest crypto exchanges, WazirX and ZebPay, published a trader sentiment survey indicating that 27% of respondents sold 50% of their assets, while 83% of traders reduced their trading frequency. The world's largest cryptocurrency, Bitcoin, experienced a dip of over 45% in less than three months and was trading around $20,000 (INR 16 lakh) as of July 5, 2022. During 2020-21, Bitcoin never fell below Rs 35 lakhs. Most popular cryptocurrencies witnessed a drop in value ranging from 60% to 80%. The study examines the volatility in Bitcoin, analyzing the daily closing prices over a period of 10 years from January 2014 to April 2024. GARCH models were employed to model volatility.