IS BITCOIN A HEDGE OR A HAZARD? THE IMPACT OF POLITICAL UNCERTAINTY ON BITCOIN VOLATILITY DURING THE U.S. PRESIDENTIAL ELECTIONS (2023–2024)

Abstract

The goal of this research is to analyze political uncertainty's short- and long-term impact on the volatility of Bitcoin throughout the US presidential election period (2023-2024), and test its value as a hedge asset in the face of rising political tensions. The GARCH-MIDAS model used here selects high-frequency daily returns on Bitcoin and low-frequency macroeconomic and political data, such as the Economic Policy Uncertainty Index (EPU), the Volatility Implied Index (VIX), and an irregular dummy variable for political events (POL_EVT). The empirical evidence depicts how Bitcoin is highly sensitive to political shocks, both sudden (short-run) and institutional (long-run), with its volatility speeding up as uncertainty increases. In contrast to traditional safe-haven securities such as gold or government bonds, Bitcoin does not exhibit hedging behavior during times of political turmoil. Instead, it is a high-risk speculation asset, responding in real-time but destabilizing to evolving political events. Moreover, the GARCH-MIDAS model proved to be outstanding in capturing the time and non-linear impacts of uncertainty compared to standard models, buttressing the importance of including political factors when studying the volatility dynamics of cryptocurrencies.