How Does Investor Attention Impact the Price of Bitcoin

Abstract

Bitcoin has emerged to become the most popular cryptocurrency and its presence\nhas the potential to disrupt existing payment and monetary systems. Over the past\ndecade, the bitcoin price has exhibited extreme volatility, puzzling for both academics\nand market practitioners. We examine the dynamic relationship between\ninvestor attention and the bitcoin price using principal component analysis and vector\nerror correction models and discover that investor attention is an important contributor\nin bitcoin price formation. Variance decomposition analysis suggests that\ninvestor attention explain a significant amount of future variations in the bitcoin\nprice, and investor attention can be used to predict direction of future price change.\nOur study offers insight into the bitcoin market and the economic impact of investor\nattention.