How Does Investor Attention Impact the Price of Bitcoin?

Abstract

Bitcoin has emerged to become the most popular cryptocurrency and its presence has the potential to disrupt existing payment and monetary systems. Over the past decade, the bitcoin price has exhibited extreme volatility, puzzling for both academics and market practitioners. We examine the dynamic relationship between investor attention and the bitcoin price using principal component analysis and vector error correction models and discover that investor attention is an important contributor in bitcoin price formation. Variance decomposition analysis suggests that investor attention explain a significant amount of future variations in the bitcoin price, and investor attention can be used to predict direction of future price change. Our study offers insight into the bitcoin market and the economic impact of investor attention.