Flight to Bitcoin

• Main Authors: YU, Yang, ZHANG, Jinyuan
• Format: text
• Language: English
• Published: Institutional Knowledge at Singapore Management University 2022
• Subjects: Cryptocurrency; Bitcoin; Capital controls; Economics policy uncertainty; Foreign exchange; Finance and Financial Management; Technology and Innovation
• Online Access: https://ink.library.smu.edu.sg/lkcsb_research/7437; https://ink.library.smu.edu.sg/context/lkcsb_research/article/8436/viewcontent/Flight_to_Bitcoin.pdf
• Institution: Singapore Management University

This paper uncovers an overlooked motivation of Bitcoin investment: investors hold Bitcoin as an asset on which government authorities have limited influence. Consistent with this motivation, we document a flight-to-Bitcoin (FTB) phenomenon whereby local demand for Bitcoin increases with local economic policy uncertainties and Bitcoin ownership shifts from centralized exchanges to decentralized wallets amid such turbulence. FTB is driven by investors’ lack of confidence in government as FTB is stronger in countries where the confidence in government is low and corruption incidents surge. Finally, a comparison with safe-haven assets further differentiates FTB from flight-to-safety.