Thanks to COVID-19, the world and the economy is on the brink of collapse. There is a lot of uncertainty and volatility going on throughout the world right now and in America, printing money seems to be the solution. Of course, many people know that this is but temporary and is in no way a long term fix for all the turmoil that has been brought on thanks to the coronavirus in the past few months.
But as the federal reserve prints money, investors and traders have turned to crypto and specifically, bitcoin. This is in order to diversify their own portfolios but the investors and the decisions that they make will be greatly impacted by the macroeconomic factors such as the economic policy uncertainty and the global economic activity.
All across the world there is a lot of political unrest but a question on many investors' lips is whether they should consider this political risk as they change and edit their own portfolio. Looking at a recent study, changes in the political landscape are related to the return and volatility of cryptocurrency. Titled 'US Partisan Conflict and Cryptocurrency Market,' the research looks into how Cryptocurrency can be used as a hedge against political and economic uncertainties.
The paper uses the partisan conflict index (PCI) which is a method that looks into the uncertainty of the political landscape and how it could impact Cryptocurrency. The paper goes on to say that the political situation is increasing tensions and in turn, that makes everything significantly worse in government.
The results from the paper find that the change rate of the PCI has been associated with crypto returns in a positive light. Specifically, bitcoins return would increase if the United States partisan phrases about an increase in the same light would reduce the volatility of the leading crypto asset.
The paper says:
"….the effects of the change in PCI on the Litecoin, Ripple, and Ethereum returns have the same sign but weaker than that on the Bitcoin return when controlling for the Chinese economic policy uncertainty effect."