Bitcoin and Different Types of Uncertainty/Risk

What matters (as we ponder Russian actions in Ukraine (e.g., invasion). Will elevated geopolitical risk matter, and if so, how much?

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 Panel: and Bitcoin average of daily (blue, left log scale), and Caldara-Iacoviello Geopolitical Risk Index (GPR) (pink, right scale). Source: Coinbase, CBOE, via FRED, Caldara-Iacoviello, and author’s calculations. Bitcoin, VIX, EPU data through 1/27/2022.

Of these three, cursory regression analysis indicates that VIX has the highest correlation over the past four years (see also this post for analysis linking to interest rates). On the other hand, the GPR reading of about 100 in December is dwarfed by the 500 reading in September 2001, so a major war in central Europe might very well have a qualitatively and quantitatively different impact on bitcoin prices.

35 thoughts on “Bitcoin and Different Types of Uncertainty/Risk

  1. ltr

    I am puzzled about this demonstration. Bitcoin is self-referential as an investment or rather a speculation. Bitcoin is worth more as the price rises and less as the price falls. So, I do not understand Bitcoin as a gauge of uncertainty. When Bitcoin sharply declined in price, the President of El Salvador said Bitcoin was better valued and bought more for the country. But, a lower price of Bitcoin makes it less valuable since price is the reference.

    I am not arguing, only puzzled. The post is interesting.

    1. Macroduck

      Bitcoin, as part of a portfolio, will be affected by portfolio risk decisions. If risk to the overall portfolio is perceived to have risen, the investor will shift the portfolio toward safer assets. That shift entails selling other assets.

      If crypto-currencies were thought to be exposed to political risk, that would lead to selling to shed risk directly when political risk perception is high. Even if crypto-currencies are not seen as exposed to political risk, they are still high-volatility instruments and are shed when overall portfolio risk needs to be reduced.

      Highly liquid emerging market assets facethis problem whenever some segment of EM portfolios come under pressure.

  2. rsm

    So you couldn’t even make your chart crime tell a coherent story, because the noise was too stubborn, eh?

    1. Menzie Chinn Post author

      rsm: No. The point is nobody I know of does “error bars” of the type you are speaking of for a forecast. Or if there is somebody, their take is so idiosyncratic as to be irrelevant.

    2. Barkley Rosser


      “chart crime”? You are becoming more and more just outright openly insane, not to mention utterly worthless and disgusting. You have really gone over the line with this garbage. Get lost, loser.

  3. ltr

    “What matters (as we ponder Russian actions in Ukraine (e.g.——–).”

    [ Forgive me, but this sentence needs to be modified. At least the word “possible” should be inserted since this is a speculation, a possibility, that has been directly and explicitly dismissed by the President of Ukraine as well as by Russia’s deputy foreign minister, Sergei A. Ryabkov.

    Please do not think me overly critical, but I find the sentence as constructed incorrectly assertive. ]

    1. Menzie Chinn Post author

      ltr: Well, there is currently Russian action as is with active support of separatists in Donbas, and occupation of Crimea. So already there are actions.

      1. Baffling

        One can imagine ltr would post in defense of russia, given the recent ccp propaganda in their defense as well. But prof chinn is correct. Russian behavior towards ukraine is not “possible”, it is actual. Ltr, russia has already invaded ukraine in the crimea. Just like china invaded tibet. And is threatening taiwan.

      2. Anonymous

        what would ukraine be without stalin and krushjev……..?

        and how far are russian actions in ukraine from usa actions in dozens of entities around the world?

        such conscern for leaving others alone….!

        i see putin as jfk in oct 1962….

        1. Menzie Chinn Post author

          Anonymous: I don’t think the US has nuclear tipped intermediate range ballistic missiles in the Ukraine, as the USSR was placing in Cuba in 1962. Please advise if you have evidence to the contrary.

          1. Anonymous

            what’s nukes got to do with it?

            kyiv to moscow and havana to washington dc, about as close…..warheads are warheads

            accuracy is improved to the point a lot of targets no longer require nukes

            then there are cruise missiles and cheap drones..

            once in nato……

            usa never admits where they have the weapons and delivery systems?

          2. pgl

            January 31, 2022 at 9:17 am
            what’s nukes got to do with it?

            And we thought rsm is a worthless troll. GEESH!

        2. Moses Herxog

          The idea that NATO is any kind of a threat to Russia is a laugh riot. If you includes ALL or the European forces/NATO located near the border to the Russian forces recently deplyed near Ukraine alone, you’d have a 10-to-1 ratio favoring Russian soldiers.

          I keep wondering, of the many great things American has show the world over the years (and we have done lots of bad things as well) that one of the most flattering things about the inherent goodness of American citizens (at that time any) and by extension of that once good citizenry a pretty damed good Democratically chosen government~~that for 4 years America had nuclear capability before any other nation, and used that capability twice, on a nation that attacked America first, that America would later play a large part in the economic rebuilding of, and the cheapest national defense of probably any nation on Earth (in terms of domestic cost) , for how many decades after clear to today.

          YES, America and NATO salivate everyday for the Western portions of Russia. There’s not a waking moment we don’t think about this…….. Has this entire world population now have an extra chromosome 21?!?!?!?!?

          1. Anonymous


            i would suggest an almost useable analogy houthi in yemen to saudi who are royals armed up by usa

            nato is useless but not for the point you attempt.

            land war in europe would be a human tradegy far outweigh any benefit to the beltway bandits n dc pushing

        3. noneconomist

          Anonymous: please check on availability of community college refresher courses in U.S. and World History.

        4. Barkley Rosser


          Without Stalin and Khrushchev Ukraine would be a lot more populous. They oversaw the massive famine in Ukraine in the early 1930s that killed millions of people.

          Just what were you thinking about when you mentioned them? Did you think they did something beneficial for Uktaine?

          1. Barkley Rosser


            BTW, the early 30s famine in Ukraine is known there as the “Holodmar.” Has Tucker Carlson not mentioned this while saying the US should side with Russia in the current dispute?

          2. noneconomist

            Checked my old “History of Russia” college text (Ellison) and found this: “The organization of Soviet agriculture was revolutionizedin the decade following the commencement of the first plan. The most conspicuous achievement was the extent of collectivization, 93.6% of all peasant households by July 1938.
            But almost as striking was the large reduction in the number of peasant households. Between 1928 and 1938, their number diminished by nearly five million or 20%, a change resulting from mass transfer of population to the cities, but also connected with the famine and deportation of compulsory labor.”
            The text notes “…great suffering and loss of life, especially in Ukraine and Kazakhstan.”
            Sure, Anonymous. What would Ukraine have been without Stalin and First Secretary (of the Ukrainian Party) Khrushchev?

    2. ltr

      Again, the Russian foreign ministry and the President of Ukraine have expressly denied an invasion of Ukraine is about to occur. Speculation can be reasonable, but I do not think it proper to directly and explicitly contradict the President of Ukraine. In a matter that may lead to war, experience teaches that care in language is needed:

      January 28, 2022

      White House Warnings Over Russia Strain Ukraine-U.S. Partnership
      While Ukraine’s president complained about “acute and burning” warnings from Washington, the Pentagon issued a dire new appraisal asserting Russia has amassed enough troops to invade his entire country.
      By Michael Schwirtz and Andrew E. Kramer

      1. ltr

        No matter, I am sorry to have been at all critical. No doubt I simply failed to understand the assertiveness of the opening sentence.

        I appreciate the post. I am sorry to have been critical.

        1. ltr

          I am sorry to have been at all critical….

          [ Considering carefully, my comments were excellent and necessary and polite as always, and I am completely pleased to have made them. ]

      2. Macroduck

        If one is accustomed to slavishly accepting statements from political elites, then one might write “I do not think it proper to directly and explicitly contradict the President of Ukraine.” If, on the other hand, on sees political elites as answerable to the public, then such contradiction would be normal, civic-minded behavior.

        And since ltr slavishly repeats the views of political elites in China and Russia, as well as Chinese and Russian puppet states, we can understand her position here.

        And no, I’m not suggesting Ukraine is a Russian puppet, yet.

    3. Barkley Rosser


      I have seen that while they are being low key about it, PRC is supporting Putin on the Ukraine matter, despite his approach being a massive violation of multiple international treaties Russia, and the former USSR, signed, with PRC also signing some of them. There is no justification for this position. You really need to not spout disgusting garbage on this matter from your usual sources. This is a time for you to just lay low.

      Oh, and on the matter of Kazakhstan you on another site repeated a nauseating piece from those folks about how the PRC was not going to allow any “color revolutions” to happen there. Well, the apparently spontaneous uprising quickly put down by the government seems to have had zero outside support, but a) there is no definition of a “color revolution,” and b) the PRC government has no right to declare what or how the government of another nation will be determined.; this is just rank imperialism on the part of the murderous dictator, Xi Jinping.

      1. Anonymous


        you have opinions and show a deep disdain for others’ conclusions that you do not “like”.


        1. Barkley Rosser


          I possibly came on too strong here. Yes, I do “have opinions.” This is also a topic I know a lot about, pretty clearly way more than you do, based on your comments on this matter here so far.

        2. Barkley Rosser


          BTW, it is a simple fact, not being mentioned all that much, that just based on its actions in Crimea, Russia is in violation of the UN Charter, the Helsinki Accords, and the Budapest Accords, all of which it signed. Are you aware of all this, and if so, does it not matter to you at all? Are treaties like pie crusts that need to be broken, as Lenin once said?

          As it is, I actually agree with ltr that the probability of full blown invasion by Russia of Ukraine is lower than what some people in DC and some other places are saying. I do not know what Putin is actually going to do, he is having a lot of fun scaring people and messing with world markets (including oil). There are reports that he is listening closely to reactionary nationalist advisers who support trying to recereate the USSR, but it may well be that some sort of agreement regarding the separatist republics in Donbas will satisfy his ego and save his face, with him needing to get something to back down after all this noise and threats and buildups. His cronies really will be hurt by a cutoff from the SWIFT system, and I suspect he is also paying attention to them.

        3. noneconomist

          Your “opinions” make Stalin and Krushchev to be very popular in pre-WW II Ukraine. You might support those “opinions” by explaining the effects of various purges, forced collectivizations, and the forced movement of large numbers of farmers to cities.
          Perhaps the inclusion of the terms “famine” and “coercion” should also be prominently mentioned. And please, give some thought to how Stalin reacted to the concept of Ukrainian nationalism..
          I eagerly await your discoveries and support of your ‘opinions”.

    4. Barkley Rosser


      And please do not remind us that the GDP in Xinjiang has risen while Xi Jinping has murdered large numbers of people there. After all, GDP ROSE IN GERMANY AFTER ADOLF HITLER CAME TRO POWER.. Got it?

  4. ltr

    January 31, 2022

    Chinese mainland reports 58 new COVID-19 cases

    The Chinese mainland recorded 58 confirmed COVID-19 cases on Sunday, with 40 linked to local transmissions and 18 from overseas, data from the National Health Commission showed on Monday.

    A total of 52 new asymptomatic cases were also recorded, and 812 asymptomatic patients remain under medical observation.

    Confirmed cases on the Chinese mainland now total 106,073, with the death toll remaining unchanged at 4,636 since January last year.

    Chinese mainland new locally transmitted cases

    Chinese mainland new imported cases

    Chinese mainland new asymptomatic cases

  5. ltr

    Here was the sentence I politely questioned:

    “What matters (as we ponder Russian actions in Ukraine (e.g.——–).”

    Here was my polite questioning of the sentence:

    [ Forgive me, but this sentence needs to be modified. At least the word “possible” should be inserted since this is a speculation, a possibility, that has been directly and explicitly dismissed by the President of Ukraine as well as by Russia’s deputy foreign minister, Sergei A. Ryabkov.

    Please do not think me overly critical, but I find the sentence as constructed incorrectly assertive. ]

    I thought the sentence in question should be tempered. That my polite questioning complete with New York Times references was met so harshly and fiercely is of course no reflection on my proper and necessary questioning. I am entirely pleased with my questioning.

    1. ltr

      January 11, 2022

      A Russian Pledge of No Invasion? Ukrainians Are Skeptical.
      When Russians say no, they often mean yes, a former Ukrainian member of Parliament said, as suspicion ran deep about Moscow’s intentions.
      By Andrew E. Kramer

      KYIV, Ukraine — It sounded like a reassuring pronouncement: Russia’s deputy foreign minister, Sergei A. Ryabkov, declaring after negotiations with the United States that “we have no intention to invade Ukraine.” …

      January 28, 2022

      White House Warnings Over Russia Strain Ukraine-U.S. Partnership
      While Ukraine’s president complained about “acute and burning” warnings from Washington, the Pentagon issued a dire new appraisal asserting Russia has amassed enough troops to invade his entire country.
      By Michael Schwirtz and Andrew E. Kramer

      1. pgl

        “we have no intention to invade Ukraine.”

        And we supposed to trust this Putin employee? Sorry but it turns out that the Russian military has 130 thousand troops on the border and have been stocking up on blood and plasma which strikes me as a clear sign they are getting ready to invade. But do continue to spread Putin’s lie. It is what you do.

  6. ltr

    What is important is to remember that Arab nations, predominantly Muslim nations, neighboring and afar, have supported China on Xinjiang policy before the United Nations Human Rights Council. Israel’s President has cordially spoken twice in past weeks with the President of China, supporting deepening already deep relations with China. There are sister/brother relations between a number of Israeli and Chinese cities, Israeli universities have a number of Chinese studies departments as Israeli studies are part of Chinese universities. A free trade agreement is now being worked on between Israel and China:

    December 9, 2021

    Xinjiang’s tourism revenue up 17 pct in Jan-Oct

    URUMQI — China’s Xinjiang Uygur Autonomous Region received 170 million tourists from January to October this year, with its tourism revenue hitting 129.4 billion yuan (about 20.4 billion U.S. dollars) during the period.

    The revenue from tourism increased 16.8 percent year on year in the period, according to the regional culture and tourism department.

    During this period, a total of 127 government-funded cultural and tourism infrastructure projects were carried out, with a total investment of approximately 9.7 billion yuan….

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