Examining the Determinants of the Demand for Bitcoin: Is Monetary Policy a Significant Factor?

Abstract

This study addresses the escalating Bitcoin trading volumes in Egypt, leading to unprecedented price levels. In the absence of prior studies into the determinants of Bitcoin prices in Egypt, the paper evaluates the impact of monetary policies, specifically those related to money supply and interest rates, on Bitcoin prices. The analysis also incorporates determinants of other local investment assets, such as gold and stocks, considering Bitcoin as an alternative investment avenue. Utilizing time series analysis and co-integration models (ARDL, ECM and GARCH) with monthly data from January 2015 to June 2023, the study reveals a positive correlation with money supply (M2), EGX30 index investments, and global Bitcoin prices. Conversely, no statistically significant relationship is observed for the real interest rate and gold pound price. This outcome suggests that Bitcoin usage in Egypt primarily serves portfolio diversification and seeks quick and substantial returns, rather than functioning as an inflation hedge or safe haven.