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, policyuncertainty.com 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.