Publication Type
Working Paper
Version
publishedVersion
Publication Date
2-2023
Abstract
We show that change in Grayscale Bitcoin Trust premium is the single most significant predictor of Bitcoin daily return. This sentiment measure is similar to the closed-end fund discount measure as in Baker and Wurgler (2006), but more likely to reflect the excess demand from traditional investors than from blockchain specialists. Although there is a substantial variation in Bitcoin price quotes worldwide, this Grayscale premium and discount predict Bitcoin daily return for the most liquid Bitcoin exchanges. Using K-means clustering and LDA analysis, we find that this predictability is especially significant when there is a large variation in bullish and bearish market sentiment, innovation regarding CBDC, regulations on crypto exchanges, but not when there is innovation regarding blockchain technology or bitcoin mining. A simple long and short strategy based on this signal generates a daily alpha of 40 bps. These findings suggest that Bitcoin prices react with a delay to the information contained in the sentiment of traditional investors and investors who are constrained from directly holding Bitcoin.
Keywords
Cryptocurrency, Bitcoin ETFs, Coinbase, GBTC, Sentiment
Discipline
Finance | Finance and Financial Management
Research Areas
Finance
First Page
1
Last Page
68
Publisher
SSRN
Citation
HUANG, Lei; LIN, Tse-Chun; LU, Fangzhou; and SUN, Jian.
The financialization of cryptocurrencies. (2023). 1-68.
Available at: https://ink.library.smu.edu.sg/lkcsb_research/7447
Creative Commons License
This work is licensed under a Creative Commons Attribution-NonCommercial-No Derivative Works 4.0 International License.