Does Chinese Exchanges Affect Bitcoin Price?

Abstract

China was one of the first nations to implement cryptocurrencies back in 2013. The highest trade volumes have previously been reported on the Chinese exchanges in cryptocurrencies. However, after four years, the China government shut down cryptocurrency exchanges and initial coins offering websites. The problem arises as to whether the Chinese exchange affects the price of Bitcoin in case of prohibition. Therefore, the aim of this research is to analyse the causal link between the Chinese exchange and the Bitcoin prices. The causality between the Bitcoin price and Chinese stock market are examined through the vector autoregressive model (VAR). There is short run causality from Shanghai Composite Index and Shenzhen Composite Index to Bitcoin price. This study found that Bitcoin could be a potential hedge against the Shenzhen Composite Index while the Shanghai Composite Index is merely a factor that affects Bitcoin price in the short run. In contrast to existing studies, this study considers the causality between the Bitcoin price and the Chinese exchanges.