The Time-Varying Impact of the Federal Reserve Rate Hike on Bitcoin
Zixuan Cheng*
University of Liverpool, Liverpool L693BX, UK
*Corresponding Author: Zixuan Cheng, University of Liverpool, Liverpool L693BX, UK.
Published: November 30, 2023
Abstract
The Federal Reserve has raised interest rates four times in a row, twice by 75 basis points from June to July, totaling 150 basis points, since 2022 in an effort to reduce the rising inflation in the United States. This is the most important development since 1980. After the rate hike in July, the policy rates of the United States have reached a range from 2.25% to 2.50%, which is widely considered by dozens of people as a "neutral rate" level. Since the U.S. dollar is the dominant international currency and controls the world's financial, monetary, and trade settlement systems, the Fed's interest rate hike has an impact on the world financial market. Bitcoin has become a financial asset traded on a global scale and has gradually become popular in financial market transactions. With the Fed's rate hike, a considerable number of investors in the cryptocurrency market are very concerned about the impact of the Fed rate hike on Bitcoin, and then reassess the risks to ensure their own interests. This paper searches and obtains data on the Bitcoin price and USD/CNY exchange rate from June 1, 2021 to August 15 2022. This paper uses VAR and ARMA-GARCH models to study the impact of the USD-CNY exchange rate changes on the rate of return and volatility of Bitcoin.
Keywords: US; Federal Reserve Bank; rate hike; USD; CNY; ARMA-GARCH model
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