Impact of Macroeconomics Factors on Cryptocurrency Pricing: Evidence From Bitcoin and Ethereum Markets

Abstract

This study empirically explores the impact of a set of macroeconomic factors on the pricing behavior of cryptocurrencies in a nonlinear setting. Employing the lag-augmented vector autoregressive framework (LA-VAR) and threshold regressions with both static and moving thresholds, the results indicate that risk appetite and market liquidity are the two most reliable drivers of cryptocurrency prices. Generally, the findings show that changes in expectations for future macroeconomic conditions induce changes in the opposite direction. Moreover, there is a relatively unstable relationship between macroeconomic factors and Bitcoin and Ethereum. Despite episodes of continuous and significant causal relationships, we observe noticeable shifts in significance. These observations, which are supported by the threshold regression analysis, also provide crucial evidence for conditional dynamics.