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Cryptocurrency technology revolution: are Bitcoin prices and terrorist attacks related?
Yu Song1, Bo Chen1, Xin-Yi Wang1
1Institute of Defense Economics and Management, Central University of Finance and Economics, 39 Xueyuan South Road, Beijing, China.
Financial Innovation
|January 30, 2023
Summary
Bitcoin price is influenced by terrorist incidents, with investors prioritizing fatalities over attack frequency. While Bitcoin can fund terrorism, its current role is minor, impacting price more than terrorist activity.
Area of Science:
- Economics
- Finance
- Political Science
Background:
- Cryptocurrency, a financial innovation of the information age, presents both advantages and disadvantages.
- Understanding cryptocurrency's role in illicit activities like terrorism financing is crucial.
Purpose of the Study:
- To investigate the risk hedging and terrorist financing capabilities of Bitcoin.
- To analyze the relationship between Bitcoin prices and terrorist activities.
Main Methods:
- Utilized a time-varying parameter/stochastic volatility vector autoregression model.
- Empirically examined the impact of terrorist incidents and brutality on Bitcoin price.
Main Results:
- Both terrorist incidents and brutality significantly explain Bitcoin price, with brutality having a stronger effect.
- Terrorist incidents have a weaker impact on Bitcoin price compared to brutality.
- Bitcoin price has a negligible impact on terrorist attacks.
- Bitcoin is identified as a potential, but not currently significant, tool for terrorist financing.
Conclusions:
- Bitcoin investors are more sensitive to the severity (number of deaths) of terrorist events than their frequency.
- While Bitcoin has the potential for terrorist financing, its current role is limited.
- Findings aid investors in Bitcoin price prediction and enhance anti-terrorist financing strategies.
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