Co-movement between RMB and Bitcoin with Effects of DCEP Using Wavelet Coherence Analysis

Abstract

Utilizing wavelet coherence analysis, we investigate the correlation of fluctuations and phase differences between Bitcoin and RMB to identify capital flows between the two currencies. The effects of Digital Currency Electronic Payment (DCEP) on their co-movement are further analyzed. Our findings reveal that the RMB exchange rate leads the price of Bitcoin in all significant co-movement areas. Furthermore, it appears that from February 2017 to September 2018, the Sino-US trade frictions and US dollar interest rate hikes may have resulted in a long-term negative co-movement, which seems to have been driven by RMB and possibly indicated capital flows from RMB to Bitcoin. The short-term positive co-movement between November 2019 and July 2020 could be attributed to the COVID-19 pandemic. Finally, we also demonstrate that the DCEP trial event has the potential to strengthen the positive co-movement between these currencies.