Relationship between U.S. monetary policy uncertainty and Bitcoin prices: A time series analysis

Money has undergone numerous transformations throughout history. While barter was the prevalent method in agrarian societies, precious metals like gold and silver later became widely used globally. The early 20th century marked the advent of paper currencies. Alongside these currently dominant fiat currencies, digital currencies, known as cryptocurrencies, have emerged. These digital currencies offer several advantages due to their decentralized structure. Bitcoin, the pioneering cryptocurrency, was introduced on October 31, 2008, through a white paper authored by Satoshi Nakamoto. Bitcoin's emergence during the 2008 financial crisis was perceived as having a negative impact on the traditional monetary system and sparked considerable debate. Its limited supply and independence from any central authority have been viewed as an impediment to the United States' (U.S.) monetary policy objectives. The surge in cryptocurrencies during pandemics and economic crises has further fueled discussions regarding their susceptibility to the monetary policy uncertainty index. Considering that central banks influence asset prices through their monetary policies, numerous studies in the existing literature indicate that U.S. monetary policy and the U.S. monetary policy uncertainty index may indeed impact crypto assets. The focus of this study is to investigate how the U.S. monetary policy uncertainty index affects Bitcoin prices. Accordingly, the objective of this research is to analyze the impact of the U.S. monetary policy uncertainty index on Bitcoin prices using time series analysis techniques. This study will utilize monthly data spanning the period from 2016:1 to 2024:12. By examining the influence of the U.S. monetary policy uncertainty index on Bitcoin prices, this research is expected to make a significant contribution to the existing literature. The working hypothesis of this study is that increases in the U.S. monetary policy uncertainty index will lead to an increase in Bitcoin prices. Keywords: U.S. Monetary Policy, U.S. Monetary Policy Uncertainty Index, Bitcoin, Fed, Time Series.