Volatility and Returns of Bitcoin During US Elections 2016 and 2020

Abstract

Bitcoin's return volatility from 2014 to 2022 reveals significant changes in response to political and macroeconomic developments, particularly during the 2016 and 2020 U.S. presidential elections. In 2016, Bitcoin exhibited modest price movement and low volatility, while in 2020, the asset experienced dramatic price increases and heightened volatility, reflecting increased market maturity and institutional interest. Political uncertainty, regulatory shifts, and market sentiment played crucial roles in shaping volatility dynamics during these periods. Using GARCH(1,1) and EGARCH(1,1) models, time-varying volatility patterns and asymmetric effects of market shocks are analyzed. GARCH results confirm volatility clustering and high persistence, whereas EGARCH captures leverage effects, showing that negative shocks influence volatility more than positive ones. Visualizations of conditional variance support these findings, indicating that Bitcoin reacts more intensely to adverse news, especially during politically turbulent periods. Residual diagnostics suggest model adequacy and enhance the reliability of insights. These results underscore Bitcoin's evolving role as a financial asset increasingly affected by global events and investor sentiment, offering valuable implications for market participants and policymakers monitoring risk in cryptocurrency markets.