The relationship investigation between Bitcoin and safe investment products (havens) by the Markow Regime Switching Model after trade wars

Abstract

Purpose-Determination whether there exists a connection or interaction between Bitcoin and safe investment products, which were seen as safe havens, during the trade wars formalized with US President Donald Trump after the 2016 US presidential election is the main of this paper. With the first tariff raise (application) which officially started trade wars, it is desired to understand whether there was a change in the safe investment product preference in the period of the first tariff raise and the US Central Bank's decision to enlarge the balance sheet over the NY FED in September 2019 (after the July 2019 first interest rate cut) due to the liquidity shortage between banks. Methodology-Using Markow Regime Switching Model, the relationship between Bitcoin, gold, silver, Swiss franc and Japanese yen between these two dates and market regimes (bullish, bearish) were examined. Since the dollar and the euro have already been seen as safe havens as base currency, they are not included in the analysis. Findings-If bullish, Japanese yen and Swiss franc can affect investors in Bitcoin's investment decisions, contrary it can be seen that there is not any effect in the bear market regime. In Bitcoin, investor behavior is longer to hold its position in the bear market. Conclusion-Similar to some studies in the literature, during the period of trade wars, Bitcoin could be evaluated as a profit-making investment instrument and portfolio diversification rather than being a safe investment product (haven) among the regimes.