The COVID-19 Pandemic, the US Dollar Index, and Bitcoin Prices: Evidence from the Wavelet Analysis Method

Document Type : Research Paper

Authors

1 Ph.D. Candidate, Department of Economic Development and Planning, Faculty of Management and Economics, Tarbiat Modares University, Tehran, Iran.

2 Assistant Prof., Department of Economics, University of Kurdistan, Sanandaj, Iran.

3 M.Sc., Department of Economics, University of Kurdistan, Sanandaj, Iran.

10.22059/frj.2024.361672.1007484

Abstract

Objective
In late 2019, the world faced a profound challenge with the emergence of the COVID-19 crisis, which had a lasting impact on economies across both developed and developing nations. The consequential impact reverberated through international financial markets, forcing their constriction and eventual closure as nations enforced sweeping nationwide quarantines. Simultaneously, healthcare expenditure soared, juxtaposed against a downturn in economic growth. Amid this upheaval, the domain of digital currencies, notably Bitcoin, experienced reverberations from the COVID-19 outbreak. Bitcoin's introduction signaled a new era of direct electronic payments and streamlined cross-border wealth transference, pivotal components underpinning the scaffolding of global trade. While COVID-19 doesn't solely account for the surge in Bitcoin prices, its presence likely played a substantial role, exacerbated by escalated uncertainties and risks amidst the global pandemic. The focal point of this study lies in examining the interplay between COVID-19 dynamics and the US dollar index on Bitcoin prices, utilizing Continuous Wavelet Transform (CWT) data spanning from April 8, 2020, to April 8, 2023. This study's novelty lies in its utilization of the Continuous Wavelet Transform, offering a distinctive edge within the realm of research on this subject.
 
Methods
The COVID-19 pandemic emerged as one of humanity's most daunting challenges in recent decades, significantly impacting digital currencies, epitomized by Bitcoin, as an indispensable economic sector. Primarily, this study aims to examine the complex effects of the COVID-19 pandemic and the US dollar index on Bitcoin prices over 977 days from April 2020 to April 2023, utilizing the Continuous Wavelet Transform (CWT). The research framework integrates two pivotal variables: the volume of confirmed COVID-19 cases per million and the tally of confirmed COVID-19 deaths per million.
 
Results
The findings unravel a compelling correlation between the frequency of COVID-19 cases and associated fatalities with Bitcoin price fluctuations during the study's duration. Intriguingly, the impact of case occurrences seemingly eclipses that of mortalities, possibly rooted in escalated uncertainties and risks during the pandemic, igniting an amplified demand surge for Bitcoin as investors sought refuge to safeguard their wealth and assets. Conversely, the US dollar index emerges as a noteworthy antagonist, wielding a pronounced negative influence on Bitcoin prices throughout the study period, potentially attributed to the plausible substitution of two commodities functioning as currency.
 
Conclusion
The study's findings reveal a clear positive impact of COVID-19 cases and deaths per million on Bitcoin prices during the observed period. This increase is largely driven by heightened demand, as investors, faced with risk and uncertainty, sought out Bitcoin as a safe-haven asset. On the flip side, the U.S. Dollar Index, acting as a competing asset, showed a significant negative effect on Bitcoin’s price during the same time. This is likely due to a substitution effect: as the U.S. dollar strengthens, Bitcoin prices tend to decline.

Keywords

Main Subjects

References

 
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Financial Research Journal
Volume 27, Issue 2
2025
Pages 246-273

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