What matters (when we think about Russian actions in Ukraine (eg, Invasion). Does heightened geopolitical risk matter, and if so, how big is the impact?
Figure 1, top panel: Bitcoin (blue, left log scale), VIX (brown, right scale), Middle panel: Bitcoin (blue, left log scale), US economic policy uncertainty, centered 7-day moving average (red, right scale), Bottom plate: and Bitcoin daily averages (blue, left log scale) and the Caldara-Iacoviello Geopolitical Risk Index (GPR) (pink, right scale). Source: Coinbase, CBOE, policyuncertainty.com, via FRED, Caldara-Iacoviello, and the authors’ calculations. Bitcoin, VIX, EPU data as of January 27, 2022.
Of the three, a rough regression analysis shows that the VIX has the highest correlation over the past four years (see also this postal for interest rate related analysis). On the other hand, the December GPR reading was around 100, dwarfed by the 500 reading in September 2001, so a major war in Central Europe is likely to have a qualitatively and quantitatively different impact on the Bitcoin price.
