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Uncovering Retail Trading in Bitcoin: The Impact of COVID-19 Stimulus Checks

Author

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  • Anantha Divakaruni

    (University of Bergen, 5020 Bergen, Norway)

  • Peter Zimmerman

    (Federal Reserve Bank of Cleveland, Cleveland, Ohio 44114)

Abstract
In April 2020, the U.S. government sent economic impact payments (EIPs) directly to households as part of its measures to address the COVID-19 pandemic. We characterize these stimulus checks as a wealth shock for households and examine their effect on retail trading in Bitcoin. We find a significant increase in Bitcoin buy trades of size $1,200, which is the modal EIP amount. We find similar increases in trading for other countries that paid out stimulus checks. We estimate that the EIPs have a significant impact on the U.S. dollar–Bitcoin trading pair, increasing buy volume by 3.8% and the price by 0.6%. We also find that demand for Bitcoin is highly price inelastic compared with the demand for stocks. We suggest the demographic characteristics that make people more resilient to the COVID-19 economic shock—single, computer literate, and educated—are also characteristics of people who are more interested in Bitcoin.

Suggested Citation

  • Anantha Divakaruni & Peter Zimmerman, 2024. "Uncovering Retail Trading in Bitcoin: The Impact of COVID-19 Stimulus Checks," Management Science, INFORMS, vol. 70(4), pages 2066-2085, April.
    • Handle: RePEc:inm:ormnsc:v:70:y:2024:i:4:p:2066-2085
    DOI: 10.1287/mnsc.2023.4790
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    Cited by:

    1. Robin Greenwood & Toomas Laarits & Jeffrey Wurgler, 2022. "Stock Market Stimulus," NBER Working Papers 29827, National Bureau of Economic Research, Inc.
    2. Karmakar, Sayar & Demirer, Riza & Gupta, Rangan, 2021. "Bitcoin mining activity and volatility dynamics in the power market," Economics Letters, Elsevier, vol. 209(C).
    3. Maouchi, Youcef & Charfeddine, Lanouar & El Montasser, Ghassen, 2022. "Understanding digital bubbles amidst the COVID-19 pandemic: Evidence from DeFi and NFTs," Finance Research Letters, Elsevier, vol. 47(PA).

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    More about this item

    Keywords

    Bitcoin; COVID-19; retail trading; stimulus checks;
    All these keywords.

    JEL classification:

    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G41 - Financial Economics - - Behavioral Finance - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making in Financial Markets
    • H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household

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