North American Journal of Economics and Finance 60 (2022) 101657

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North American Journal of Economics and Finance

journal homepage: www.elsevier.com/locate/najef

Investor sentiment and Bitcoin relationship: A

quantile-based analysis
Khaled Mokni a, b, *, Ahmed Bouteska c, Mohamed Sahbi Nakhli d, e
a
College of Business Administration, Northern Border University, Arar 91431, Saudi Arabia
b
Institut Supérieur de Gestion de Gabès, Gabès University, Gabès 6002, Tunisia
c
Faculty of Economics and Management of Tunis, Tunis el Manar University, Tunisia
d
ISIG Kairouan, University of Kairouan, Tunisia
e
LaREMFIQ Laboratory, University of Sousse, Tunisia

A R T I C L E I N F O A B S T R A C T

JEL codes: This paper applies a quantile-based analysis to investigate the causal relationships between Bit­
G41 coin and investor sentiment by considering the possible effects of the ongoing COVID-19
G15 pandemic. Such an analysis allows investigating the predictive power of investor sentiment
C58
(Bitcoin) on Bitcoin (investor sentiment) at different levels of the distributions. Results emphasize
C22
that only Bitcoin returns/volatility have significant predictive power on the investor sentiment
Keywords:
whether investors are fear or greed before and over the COVID-19 period. Moreover, the COVID-
Fear greed index
19 crisis has no effect on the causal relationship between the two variables. Further analysis
Bitcoin
Nonparametric causality shows an asymmetric causality observed only during the pandemic period. Furthermore, the
Quantiles quantile autoregressive regression model shows a significant positive relationship between
COVID-19 investor sentiment and Bitcoin returns.

1. Introduction

Given the emotional behaviour of investors in the cryptocurrency market, the present paper conducts a comprehensive exploration
of the sophisticated relation between investor sentiment and Bitcoin returns/volatility. Particularly, we analyse the causal relation­
ships between the Crypto Fear & Greed Index (FGI) as a measure of investor sentiment and Bitcoin returns/volatility at different
distributional levels. We employ a methodology based on the nonparametric causality test in quantiles to examine the predictive power
of FGI on the Bitcoin returns/volatility under different market conditions (bear, normal, and bull). Likewise, we study the causality in
the other direction to evaluate the predictability of the Bitcoin return/volatility on the FGI under different sentiment levels (fearful,
normal, or feeling). Another objective of this paper is to analyse the effect of the ongoing COVID-19 pandemic on this relationship by
examining the causality before and over the health crisis. Moreover, other than the predictive power analysis, a quantiles autore­
gressive regression model (QAR) is applied to evaluate the immediate effect of each variable on the other at the different levels of the
distribution.
This paper adds to the literature in several ways. First, to the best of our knowledge, this is the first study applying the
nonparametric Granger causality in quantiles to examine the causal relationships between Bitcoin and investor sentiment. This
methodology allows testing the causal relationship between Investor sentiment and Bitcoin price in bull/bear market periods. Second,

* Corresponding author at: College of Business Administration, Northern Border University, Arar 91431, Saudi Arabia.
E-mail address: kmokni@gmail.com (K. Mokni).

https://doi.org/10.1016/j.najef.2022.101657
Received 30 June 2021; Received in revised form 9 January 2022; Accepted 27 January 2022
Available online 1 February 2022
1062-9408/© 2022 Elsevier Inc. All rights reserved.
K. Mokni et al. North American Journal of Economics and Finance 60 (2022) 101657

while most previous studies limit their analysis to already used measures and proxies of investor sentiment in the financial market, and
specifically in the cryptocurrency market, this study uses a Crypto Fear & Greed Index (FGI), created by the team behind (Alternative.
me), which is considered as the most popular sentiment indicator nowadays being used in the Bitcoin market. The FGI shows whether
investors are currently feeling bold or scared using a needle that moves from left to right, with measurements that move between 0 and
100. The lower value is related to the more fearful investors, and the higher value indicates that greedier investors are feeling. Factors
determining the index’s value include volatility, market momentum and volume, social media momentum, and Bitcoin dominance.
This enables better analysis of market behaviour on a short-term basis and enhances the accuracy of sentiment quantification tailored
for crypto assets. Third, the current research attempts to explain more the relationship between investor sentiment and Bitcoin price by
examining the tendency of prices in the long run before and during crisis periods. More specifically, we examine the possible effect of
the COVID-19 outbreak on the distributional relationship between investor sentiment and Bitcoin.
Regarding behavioural finance issues, investor sentiment becomes a key factor used not only by policymakers in designing their
policies for financial stability but also taken into account by investors and risk managers in making investment and hedging decisions
(Anamika & Subramaniam, 2021; Ben Khelifa, Guesmi, & Urom, 2021; Chemkha, Ben Saïda, Ghorbel, & Tayachi, 2021; Guzmán,
Pinto-Gutiérrez, & Trujillo, 2021; Huynh, Wang, & Vo, 2021; Evrim Mandaci & Cagli, 2021). Given the importance of this issue, the
financial literature offers many studies suggesting that Bitcoin is not driven by economic fundamentals but moves with investor
sentiment, unlike traditional assets (Burggraf et al., 2021; Bouri, Demirer, Gabauer, & Gupta, 2021).
Theoretically, the two most influential characteristics of any asset are return and volatility, as they play key roles in several
financial aspects, like asset pricing, investment portfolio allocation, and risk management. Meanwhile, behavioural finance re­
searchers paid attention to various puzzles that needed to be solved to understand and forecast the Bitcoin market (e.g., López-
Cabarcos, Pérez-Pico, Piñeiro-Chousa, & Šević, 2019; Yu et al., 2019; Kinateder & Papavassiliou, 2021; Mokni, 2021). During the
extreme return periods, further to abnormal trading volume, advertising expenditure, and media coverage, one can notice the investor
sentiment interaction in traditional financial markets, i.e., stock market and FX market, which is later proved as a main influential
factor in certain markets (Grullon, Kanatas, & Weston, 2004; Fang & Peress, 2009). In fact, especially in economic recessions, short-
term temporary price deviation from the fundamental value can be caused by investor overoptimism (Tetlock, 2007; Tetlock, Saar-
Tsechansky, & Macskassy, 2008; Garcia, 2013). Moreover, Sun, Najand, and Shen (2016) and Renault (2017) have identified that
price reversal is the simple result of increased investor optimism. However, prior findings associated with the analysis of traditional
markets are not completely applied in the cryptocurrency market, mainly regarding the permanent or temporary impact of investor
sentiment on cryptocurrency prices. First, by raising confidence and awareness, higher investor sentiment can raise the adoption rates
for cryptocurrencies. This is because, in fiat money, confidence plays one of the principal roles. When we look at cryptocurrency as a
new type of money, it is normal that the price of cryptocurrencies can be permanently maintained by investor sentiment or confidence.
Second, higher investor sentiment can also convey trading indications the same way as in the stock market if there is an irrational
increase in the demand for the speculative asset. In this similar situation, should be waiting for a price reversal.
The ongoing COVID-19 has severe influence in the global financial markets and, particularly, in the context of cryptocurrencies.
Such a health crisis was mainly accorded by an increase in uncertainty. Therefore, a prolonged sentiment effect may emerge differently
during this specific situation. In this regard, a dearth of literature investigated many issues on the cryptocurrency market over the
COVID-19 crisis, including hedging and safe haven analysis (e.g., Chemkha et al., 2021; Dwita Mariana, Ekaputra, & Husodo, 2021;
Hasan, Hassan, Rashid, & Alhenawi, 2021; Huang, Duan, & Mishra, 2021; Melki & Nefzi, 2021; Mokni, Youssef, & Ajmi, 2022), asset
pricing (Ben Khelifa et al., 2021), connectedness between cryptocurrencies and other assets (Yosaf & Ali, 2020; Naeem, Qureshi,
Rehman, & Balli, 2021; Li and Meng, 2022). The behavioural aspects during COVID-19 were also of interest, and some studies were
focused on this issue (e.g., Chen, Lau, Cheema, & Koo, 2021; Evrim Mandaci & Cagli, 2021; Guzmán et al., 2021; Huynh et al., 2021;
Lee, Hay, Liu, & Diaz, 2021). However, the investor sentiment-cryptocurrencies nexus over the COVID-19 pandemic is still less
investigated, and the number of studies appears limited (e.g., Hoang & Baur, 2021).
Besides, a prolonged sentiment effect may emerge, especially during the pre-COVID-19 pandemic period. In such a period, the
sentiment effect is prolonged until the COVID-19 outbreak, restricting the trend of prices to revert to their fundamental values. Over
this pandemic, excessive speculations and illusions about prospects might have resulted in overvalued prices on the cryptocurrency
market. This phenomenon of exuberant sentiment associated with the overvaluation of asset prices has been durable for a while. It has
been explained by the genesis of an unstable market for a certain crisis period. Based on behavioural theories analysed in the works of
Shiller (1981), Baker and Wurgler (2006), and Stambaugh, Yu, and Yuan (2012), it is suggested that investor sentiment forces prices
deviate from fundamentals. In this context, the COVID-19 pandemic crisis effect on investor behaviour resulting in over-or under-
reaction on the Bitcoin price represents an aspect not investigated so far by researchers. This influence of this pandemic is charac­
terized by recentness and uncertainty, which is why it has not been deeply investigated.
This paper is designed as follows: A summary of the literature was introduced in the second section. The used data and the applied
methodology were described in the third section. The fourth section is reserved for empirical analysis and discussion. Finally, section
five concludes the paper and provides some policy implications.

2. Literature review

For the detailed literature review on the cryptocurrencies-investor sentiment nexus, we refer to many studies on the evolution and
current research about cryptocurrencies (Corbet, Lucey, Urquhart, & Yarovaya, 2019; Bariviera & Merediz-Solà, 2021). Investors are
uncertain about cryptocurrency prices and return movements and factors driving these prices. Existing investigations showed that
numerous studies had linked Bitcoin with investor sentiment. In this context, different types of sentiment indices may have different

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K. Mokni et al. North American Journal of Economics and Finance 60 (2022) 101657

impacts and predictive power on cryptocurrency markets, especially during convulsed periods, such as the recent global pandemic
crisis (COVID-19).
Anamika and Subramaniam (2021) show that the Bitcoin prices experience appreciation when investors are optimistic about
Bitcoin. The Bitcoin sentiment has significant power in predicting the Bitcoin prices after controlling for the relevant factors. Authors
further used Baker and Wurgler and VIX sentiment indices as measures of equity market sentiment, respectively. Their results indicate
that if the equity market investors’ sentiment is bearish, cryptocurrency prices rise, and thus cryptocurrency can act as an alternative
avenue for investment. They also discovered that the results remain unaffected after controlling for potential factors impacting
cryptocurrency prices. Gaies, Nakhli, Sahut, and Guesmi (2021) analysed the impact of the Bitcoin misery index, as a measure of
investor sentiment, on Bitcoin returns using the nonlinear autoregressive distributed lag model. The results reveal that pessimistic
shocks have more effect on Bitcoin returns than optimistic shocks in the long run. Hoang and Baur (2021) further compared the impact
of investor sentiment, during the COVID-19 crisis, on returns and volatility of cryptocurrencies. The findings demonstrate that daily
shocks in coronavirus fear are related to a decrease in returns and an increase in volatility. Furthermore, they show that Bitcoin is not a
safe haven, and Google searches can be used to predict the trend of cryptocurrencies.
Investor sentiments are found to be useful for predicting cryptocurrency volatility and returns. Corbet, Larkin, Lucey, Meegan, and
Yarovaya (2020) developed a sentiment index based on news stories that follow the announcements of four macroeconomic indicators,
i.e., GDP, unemployment, Consumer Price Index, and durable goods. The results show that Bitcoin returns respond to the news
differently than stock market returns. Also, it was argued that cryptocurrency reaction to news and announcements might vary
depending on the type of digital assets. Therefore, Corbet, Larkin, and Lucey (2020) claimed that currency-based digital assets are
found to be more susceptible to the US monetary policy announcements, while applications or protocol-based digital assets are im­
mune to these shocks. A similar difference is found for mineable and non-mineable currencies, which means that the response to
different types of the uncertainty of some digital assets would be different from Bitcoin returns.
The recent COVID-19 pandemic could affect cryptocurrency investors’ sentiment and behaviour, although it has different char­
acteristics and might have different implications. The rising pattern in the volatility effect, particularly during the period when the
pandemic has become more widespread with lockdowns enforced globally, is in line with the evidence in recent studies, including
Guzmán et al. (2021) and Huynh et al. (2021) that investors became active participants in the cryptocurrency market during the
COVID-19 pandemic period and traded more Bitcoins on days with low mobility associated with lockdown mandates. Huynh et al.
(2021) suggest that the increase in trading volume and volatility in Bitcoin is induced by the increase in belief dispersion due to the
pandemic related market uncertainty and the evidence of herding behaviour in the cryptocurrency market driven by the pandemic
induced cryptocurrency market uncertainty (Evrim Mandaci & Cagli, 2021; and Lee et al., 2021).
Akyldirim, Corbet, Lucey, Sensoy, and Yarovaya (2020) find that when investors’ fear increases, cryptocurrency markets experi­
ence an increase in volatility. According to Dwita Mariana et al. (2021), who based on the WHO COVID-19 pandemic announcement,
show that Bitcoin and Ethereum are appropriate as short-term safe-havens, although the volatility of these cryptocurrencies is higher
during the COVID-19 crisis. Using the generalized quantile regression method, Chen et al. (2021) identified that, during the COVID-19
crisis, only the higher quantiles of the Chinese Economic Policy Uncertainty have a positive and significant effect on Bitcoin returns.
Hasen et al. (2021) studied the safe-haven properties of twelve assets in the US market during the 2008 global financial crisis and
COVID-19. Their findings reveal that Bitcoin and gold exhibit strong safe-haven behaviour during extreme bearish market conditions.
Ben Khelifa et al. (2021) examine the interactions between the cryptocurrency market and hedge funds during the COVID-19 crisis.
Their results show that this pandemic impacts the interactions between cryptocurrencies and conventional hedge funds strategies.
Melki and Nefzi (2021) further analysed the safe-haven and hedge properties of Bitcoin, Ripple, and Ethereum versus the stock,
commodity, and foreign exchange markets. Their results show that, during the COVID-19 pandemic, Bitcoin and Ripple offer the safe-
haven ability for the commodity and foreign exchange markets. In addition, the authors find that Ethereum is a stronger safe haven
than Bitcoin. In fact, a recent study using a multivariate asymmetric dynamic conditional correlation model proposed by Chemkha
et al. (2021) shows that Bitcoin, as a hedging asset, allows decreasing the risk of international portfolios. In addition, Bitcoin cannot be
considered a safe haven during the COVID-19 pandemic because of its increased volatility. These results indicate that cryptocurrency
market volatility might be more susceptible to price uncertainty and investors’ perceptions where behavioural factors such as investor
sentiment might have played an important role.
Much literature on behavioural finance adopted a specific approach to measure investor sentiment in cryptocurrency markets.
Many studies such as López-Cabarcos et al. (2019), Urquhart (2018), Shen, Urquhart, and Wang (2019), and Ibikunle, McGroarty, and
Rzayev (2020), Lin (2020) confirmed that investor sentiment is a principal factor to explain and predict return and volatility in the
markets for cryptocurrencies. A bi-directional causal relation between investor attention and Bitcoin returns is documented (Dastgir,
Demir, Downing, Gozgor, & Lau, 2019). Also, using search volume can contribute for sure to raise the short-term Bitcoin market
prediction (Garcia & Schweitzer, 2015; Karalevicius, Degrande, & De Weerdt, 2018). More recently, numerous studies have employed
Twitter trends to help measure investor sentiment. Later, many studies suggested that the various aspects of Bitcoin market changes, i.
e., return, volatility, and liquidity can undoubtedly be explained based on Twitter (Shen et al., 2019; Philippas, Rjiba, & Guesmi, 2019;
Choi, 2021). Similar results were also obtained for high-frequency data since statistically significant relations among investor senti­
ment and Bitcoin returns are identified by Guégan and Renault (2021). Other relations among investor attention and price discovery
are noticed in cryptocurrency markets after the study of Ibikunle et al. (2020). Further, in addition to Twitter and Google Trends,
researchers from the academic area, also discovered new possible variables in measuring investor attention. For instance, it is possible
to employ several new venues to proxy for investor attention, and this new variable is extremely important to returns and volatility
(Sabah, 2020).
Finally, there is relatively new and growing literature on Bitcoin and sentiment in general. This paper is motivated by three

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theoretical arguments discussed in the papers mentioned above. First, different groups of investors would be attracted to a particular
cryptocurrency, i.e., Bitcoin. Due to its speculative nature, Bitcoin is attractive for amateur investors who would interpret publicly
available information differently from large institutional investors. Thus, the impact of sentiment on cryptocurrency markets will
depend on the types of sentiment and type of digital assets. Second, this paper is motivated by the importance of analysis of cryp­
tocurrency prices’, returns’, and volatility’s determinants. Third, sentiment has not been voluminously studied in the cryptocurrency
market. in this context, academics and practitioners have proposed quite a few approaches to capture sentiment by designing new
sentiment indexes, for example, Anamika and M., Subramaniam, S (2021), Hoang and Baur (2021), Gaies et al. (2021), and Corbet
et al. (2020). However, studies that connected the Bitcoin market with investor sentiment seemed limited, simple, and failed to explore
investor sentiment’s explanatory and predictive power comprehensively. We use a new Crypto Fear and Greed Index (FGI) and provide
more empirical evidence to explore the sophisticated relationships between Bitcoin and investor sentiment. Specifically, we investi­
gated the connections between investor sentiment and return, as well as the volatility of Bitcoin. To the best of our knowledge, we are
the first study to understand how investor sentiment impacts Bitcoin price by investigating their nonparametric causality in quantiles
to account for the different market conditions.

3. Materials

3.1. Data and preliminary analysis

In this study, we use a daily dataset covering the closing prices of Bitcoin (BTC) against the US dollar and the fear and greed index
(FGI) as a proxy of investor sentiment in the Bitcoin market. This index takes values between 0 and 100. The values near 0 (100) mean
behaviour of investors that is “Extreme Fear (Greed).” We use this index to represent the particularity of investor behaviour in the
Bitcoin market, which is emotional.1 The data spans from 02/01/2018 to 12/10/2020, yielding 1044 observations. The starting date is
justified by the availability of FGI data. Bitcoin price is collected from the coinmarketcap.com/ website, and the data related to the FGI
is sourced from the website alternative.me/crypto/fear-and-greed-index/.
The FGI is calculated based on some factors. The first one includes volatility (accounting for 25%), given that an unusual rise in
volatility is a sign of a fear behaviour. The second factor is the market momentum/volume (accounting for 25%) of the index. Others
factors are considered in the FGI calculations include social media analysis and investor surveys (both each factor is account for 15%),
and dominance weighs at 10% of the total score. These factors are considered based on the fact that a rise in Bitcoin dominance is
caused by a fear of (and thus a reduction of) too speculative alt-coin investments, since Bitcoin is becoming more and more the safe
haven of cryptocurrencies. Therefore, one can observe that such an investor sentiment index is measured based on endogenous
(volatility) and exogeneous (momentum/volume, social media, investor surveys, and dominance weighs) factors.
To realize our analysis, we compute the returns series as the percentage of logarithmic difference. We consider the returns series
due to their advantages compared to the level series. In fact, returns are a complete and scale-free summary of the investment op­
portunity, are easy to handle, and have more attractive statistical properties (MacKinlay, 1997). To account for the effect of the
ongoing COVID-19 crisis on the causal relationships between investor sentiment and Bitcoin, we divide the sample period into two
subperiods; before and after 03/11/2020, when the World Health Organization (WHO) declared that COVID-19 is a pandemic.
Figure 1 plots the Bitcoin price and the FGI. The trajectory of the two series shows a similar pattern. Indeed, it appears that investors
are generally greed (fear) when the Bitcoin price rises (decreases). Bitcoin price reached its maximum value at the end of the study
period, with the propagation of the public health crisis of the COVID-19.
Table 1 provides the descriptive statistics and preliminary tests for Bitcoin and FGI returns over the full and the two sub-periods.
Over the three periods, the FGI experiences the highest average returns and standard deviations. The average returns are negative
(positive) before (during) the COVID-19 pandemic, indicating that both investor sentiment and Bitcoin prices are significantly affected
by this public health crisis. The Skewness and Kurtosis values, along with the Jarque-Bera statistics’ p-values, show that neither BTC
nor FGI returns are normally distributed over the full and the two sub-periods, supporting the use of quantiles-based analysis, which is
suitable for no normal series. This motivates us to look at the distributional-level analysis rather than the conditional mean when
analysing the causal relationships between Bitcoin returns/volatility and investor sentiment.
Regarding the stationarity property, we find that the hypothesis of unit roots is rejected for the two series over the full- and the two
sub-periods, as suggested by the Augmented Dickey-Fuller (ADF) and Phillip-Perron (PP) tests’ results.
However, it is recognized that the traditional unit root tests provide averaged results about the stationarity of a time series and
cannot detect the possible unit roots at the different levels of the distribution.2 To overcome this limitation, we implement the unit root
test in quantiles introduced by Koenker and Xiao (2004), which allows testing the presence of unit roots in different quantiles’ orders.
The results of this test are provided in Table 2. The test is applied for a grid of 19 quantiles (from 0.05 to 0.95) through the distributions
of Bitcoin and FGI. Results from Table 2 indicate that the test statistics are lower than critical values at the 5% significance level,
indicating that the null hypothesis of unit root is rejected for all the returns series at all quantiles. Therefore, we can proceed by
implementing the causality-in-quantiles analysis.

1
More details on this index can be found in the website https://alternative.me
2
For more details about this test, see Koenker and Xiao (2004).

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K. Mokni et al. North American Journal of Economics and Finance 60 (2022) 101657

Fig. 1. Bitcoin price and FG index evolution.

Table 1
Descriptive statistics.
Mean Max Min Std. Dev. Skewness Kurtosis J-B ADF PP

Full period: From 02/01/2018 to 12/10/2020

Bitcoin 0.066 16.710 − 46.473 3.853 − 1.656 25.153 0.000 − 34.403 − 34.311
FGI 0.110 188.707 − 140.877 22.792 0.302 14.619 0.000 − 30.246 − 50.574

Pre-COVID-19 period: From 02/01/2018 to 03/10/2020

Bitcoin − 0.019 16.004 − 17.398 3.688 − 0.112 6.086 0.000 − 28.783 − 28.769
FGI − 0.082 188.707 − 140.877 25.485 0.324 12.530 0.000 − 26.016 − 48.050

COVID-19 period: From 03/11/2020 to 12/10/2020

Bitcoin 0.304 16.710 − 46.473 4.279 − 4.447 54.606 0.000 − 19.520 − 19.502
FGI 0.644 52.609 − 68.057 12.530 − 0.330 9.057 0.000 − 19.390 − 20.317

Notes: This table contains the results of the descriptive statistics, the normality test and the unit root tests for FGI and Bitcoin returns. J-B is the p-value
of the Jarque – Bera test. ADF and PP denote the Dickey Fuller and Phillip-Perron unit root tests.

Table 2
Unit root test in quantiles results.
Quantile order FGI BTC

α T-stat CV α T-stat CV

0.05 − 0.0551 − 8.9522 − 2.3421 0.0319 − 8.5955 − 2.7072

0.1 − 0.1102 − 15.3334 − 2.6468 0.0436 − 12.5609 − 2.7875
0.15 − 0.1439 − 21.4099 − 2.6402 − 0.0305 − 17.9403 − 2.9167
0.2 − 0.1752 − 28.6570 − 2.6119 − 0.0551 –22.2912 − 2.8370
0.25 − 0.1697 –32.8655 − 2.6312 − 0.1101 − 29.4935 − 2.9191
0.3 − 0.2067 − 39.8282 − 2.7760 − 0.0881 − 34.9284 − 2.9222
0.35 − 0.1897 − 49.3120 − 2.6860 − 0.0990 − 40.4467 − 2.8905
0.4 − 0.1855 − 54.3783 − 2.7838 − 0.1077 − 49.0341 − 2.9517
0.45 − 0.2029 − 59.0533 − 2.7429 − 0.1245 − 53.1497 − 2.9803
0.5 − 0.2052 − 58.5320 − 2.7843 − 0.1202 − 55.4966 − 3.0425
0.55 − 0.2008 − 59.1835 − 2.8230 − 0.1177 − 53.9709 − 3.0514
0.6 − 0.2131 − 58.2007 − 2.7828 − 0.1100 − 50.6558 − 3.1070
0.65 − 0.2198 − 52.7109 − 2.7441 − 0.1037 − 43.9663 − 3.1747
0.7 − 0.1958 − 49.2013 − 2.7450 − 0.0853 − 37.1146 − 3.2094
0.75 − 0.2126 − 42.9682 − 2.7693 − 0.0951 − 31.4531 − 3.1394
0.8 − 0.2339 − 37.3182 − 2.7246 − 0.1229 − 27.3558 − 3.0022
0.85 − 0.2442 − 28.6817 − 2.6338 − 0.1365 − 20.9940 − 2.9030
0.9 − 0.2893 − 19.7930 − 2.4608 − 0.1286 − 14.2941 − 2.7800
0.95 − 0.3551 − 9.0824 − 2.3100 − 0.1263 − 8.2110 − 2.8366

Notes: This table presents the results of the quantile unit root test of Koenker and Xiao (2004) and Galvao (2009) for quantile order τ = 0.05, ⋯, 0.9 5.
We test the null hypothesis of the presence of unit roots at different quantiles . The null hypothesis is rejected at the quantile τ order when the test
statistics (T-stat) is lower than the 5% critical value (CV).

3.2. Empirical methodology

In this paper, we employ the nonparametric causality-in-quantile test to capture nonlinear causality. This approach was introduced

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K. Mokni et al. North American Journal of Economics and Finance 60 (2022) 101657

by Balcilar, Gupta, Kyei, and Wohar (2016); Balcilar, Bekiros, and Gupta (2017); Balcilar, Gupta, Pierdzioch, and Wohar (2018) and
based on the framework proposed by Nishiyama, Hitomi, Kawasaki, and Jeong (2011) and Jeong, Härdle, and Song (2012). The
Bitcoin price is denoted as yt while the fear and greed index is denoted as xt . Based on Jeong et al. (2012), xt does not cause yt in the
{ }
θ-quantile in reference to the lag-vector yt− 1 , ⋯, yt− p , xt− 1 , ⋯, xt− p if
( ) ( )
Qθ yt yt− 1 , ⋯, yt− p , xt− 1 , ⋯, xt− p = Qθ yt yt− 1 , ⋯, yt− p , xt− 1 , ⋯, xt− p (1)
{ }
xt is supposed to cause yt in the θ-quantile with respect to yt− 1 , ⋯, yt− p , xt− 1 , ⋯, xt− p if
( ) ( )
Qθ yt yt− 1 , ⋯, yt− p , xt− 1 , ⋯, xt− p =∕ Qθ yt yt− 1 , ⋯, yt− p , xt− 1 , ⋯, xt− p (2)

With Qθ (yt .) is the θth quantile of the yt and 0 < θ < 1.

⃒ ⃒
We consider Yt− 1 ≡ (yt− 1 , ⋯, yt− p ), Xt− 1 ≡ (xt− 1 , ⋯, xt− p ) and Zt = (X, Yt ). Fyt |Zt− 1 (yt ⃒Zt− 1 ) and Fyt |Yt− 1 (yt ⃒Yt− 1 ) represent the condi­
⃒
tional distribution function of yt given Zt− 1 and Yt− 1 , respectively. In addition, the conditional distribution Fyt |Zt− 1 (yt ⃒Zt− 1 ) is supposed
( ⃒ ) ( ⃒ )
to be entirely continuous in yt for approximately all Zt− 1 . If we define Qθ (Zt− 1 ) ≡ Qθ yt ⃒Zt− 1 and Qθ (Yt− 1 ) ≡ Qθ yt ⃒Yt− 1 , we obtain
Fyt |Zt− 1 {Qθ (Zt− 1 ) |Zt− 1 } = θ with a probability equal to 1. Therefore, the hypothesis related to Eqs. (1) and (2) for the causality-in-
quantiles can be written as:
{ }
H0 : P Fyt |Zt− 1 {Qθ (Yt− 1 ) |Zt− 1 } = θ = 1 (3)
{ }
H1 : P Fyt |Zt− 1 {Qθ (Yt− 1 ) |Zt− 1 } = θ < 1 (4)

According to Jeong et al. (2012), we employ the distance measure J = {εt E(εt |Zt− 1 )fZ (Zt− 1 ) }, where εt is the residual term and
fZ (Zt− 1 ) represents the marginal density function of Zt− 1 .
Jeong et al. (2012) demonstrate that the feasible kernel-based causality-in-quantiles test statistic can be presented as:
∑
T ∑
T ( )
1 Zt− 1 − Zs− 1
̂
Jt = K ̂ε t (5)
T(T − 1)h2p t=p+1 s=p+1,s∕
=t
h

Where K(.) represents the kernel function, h denotes the bandwidth in kernel estimation, T is the sample size, p is the lag-order, and ̂
εt
is The estimator of the unknown regression error, which is expressed as:
̂ θ (Yt− 1 ) } − θ
̂ε t = 1{yt ≤ Q (6)

Where Q̂ θ (Yt− 1 ) provides an estimate of the θth conditional quantile of yt given Yt− 1 . By employing the nonparametric kernel approach,
the term Q̂ θ (Yt− 1 ) is estimated as follows:

̂ − 1 (θYt− 1 )
̂ θ (Yt− 1 ) = F
Q (7)
yt |Yt− 1

− 1
With ̂ F yt |Yt− 1 (yt Yt− 1 ) represents the Nadarya-Watson kernel estimator expressed by:
( )
∑T Yt− 1 − Ys− 1
s=p+1,s∕
=t L 1{ys ≤ yt }
( ) h
̂ −y 1
F |Y y t Yt− 1 = ( ) (8)
t t− 1 ∑T Yt− 1 − Ys− 1
=t L
s=p+1,s∕ h

Where L(.) represents the kernel function and h denotes the bandwidth in kernel estimation.
In order to test the causality in variance between Bitcoin return volatility and fear and greed index, we employ the methodology of
Balcilar et al. (2018), who extend the framework of Jeong et al. (2012) to test the causality for the second (or higher) moment. For this
reason, we perform the nonparametric Granger-quantile-causality method developed by Nishiyama et al. (2011). To prove the cau­
sality in higher-order moments, we consider the following model:
yt = g(Yt− 1 ) + σ (Xt− 1 )εt (9)
Hence, we re-specify Eq. (9) into a null and alternative hypothesis for higher-order causality-in-quantiles as:
{ }
H0 : P Fyk |Zt− 1 {Qθ (Yt− 1 ) |Zt− 1 } = θ = 1k = 1, 2, ⋯, K (10)
t

{ }
H1 : P Fyk |Zt− 1 {Qθ (Yt− 1 ) |Zt− 1 } = θ < 1k = 1, 2, ⋯, K (11)
t

Introducing the overall framework, we specify that fear and greed index granger causes Bitcoin price in quantile θ up to K-th
moment employing eq. (10) to generate the test statistic of eq. (5) for each k. Whereas, according to Nishiyama et al. (2011), it can be

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K. Mokni et al. North American Journal of Economics and Finance 60 (2022) 101657

shown that it is difficult to integrate the different statistics for all k = 1, 2, ⋯, K jointly into one statistic in Eq. (10), since the statistics
are mutually correlated. To overcome this issue, we incorporate a sequential testing approach as developed by Nishiyama et al. (2011)
with some modifications. In this method, we first test for nonparametric Granger causality in the first moment (k = 1). Failure to reject
the null hypothesis for k = 1, does not automatically mean that there is a non-causality in the second moment; therefore, we can
generate the tests for k = 2. This method allows us to test the presence of causality-in-variance, or the causality-in-mean and variance
consecutively.
The empirical application of the causality-in-quantiles test entails identifying these parameters: the lag order p, the bandwidt h, and
the kernel type for K(.) and L(.) in Eqs. (5) and (8), respectively. Based on the Schwarz Information Criterion (SIC), we select a lag order
of one under a VAR involving Bitcoin price and fear and greed index. We select h using the leave-one-out least-squares cross-validation.
For K(.) and L(.), we perform Gaussian kernels.

4. Results and discussions

To analyse the causal relationships between Bitcoin and investor sentiment represented by the FGI, we apply the symmetric and
asymmetric version of the nonparametric causality-in-quantiles test for Balcilar et al. (2016). After that, an autoregressive quantile
regression model is estimated to verify the sign and the strength of the effect of each variable on the other under different levels of the
distributions. Our study also conducts a robustness analysis based on Google Trends (GT) as a proxy of investor sentiment.
Though our objective is to investigate the causality-in-quantiles between investor sentiment and Bitcoin returns/volatility market,
for the sake of completeness and comparability, we firstly conduct the standard linear Granger causality because this test constitutes a
first approximation to the presence of causal relationships. The test is applied based on the VAR model with 2 lags selected according to
the Schwartz Information Criteria (SC). The results are reported in Table 3. As can be seen, from this table, the FGI has no predictive
power on either Bitcoin’s returns or volatility. Whereas, in the second direction, results suggest significant causality running from
Bitcoin returns/volatility to the investor sentiment over the full and the two sub-periods.

4.1. Symmetric causality analysis

Figure 2 presents the test statistics of the nonparametric causality-in-quantiles test at different quantiles’ orders over the full period,
before and during the COVID-19 pandemic crisis. We perform the test for a grid of 19 equally spaced quantiles at orders ranging from
θ = 0.05 to θ = 0.95. As shown from Fig. 2, results point to different pictures on the causal relationships between Bitcoin returns and
investor sentiment. In fact, the null hypothesis postulating that FGI does not cause Bitcoin returns cannot be rejected at all quantiles,
indicating that investor sentiment does not contain information on the predictability of Bitcoin returns over the full and the two sub-
periods. Whereas, there is evidence of significant causality running from Bitcoin returns to investor sentiment for all levels of FGI
distribution (fear, normal, or greed sentiment), except high quantiles (greed sentiment) over the full period and before the health crisis
and the two extreme quantiles during the COVID-19 sub-period. These findings can be explained by the fact that Bitcoin is a speculative
asset, and investors’ behaviour is highly sensitive to this asset’s price fluctuation. Moreover, the unidirectional causality suggests that
accurate investors’ sentiment expressed by the degree of fear or greed is determined by the Bitcoin returns.
Our results are consistent with previous findings by Lin (2020) and Shen et al. (2019), who used Google and Twitter trends as
investor sentiment measures, respectively. They generally find a significant impact of cryptocurrency returns on future investor
attention and weak evidence of the reversed relationship. However, our results contradict those of Eom, Kaizoji, Kang, and Pichl
(2019) and Burggraf et al. (2021), who point out that Bitcoin investor sentiment plays an important role in predicting price changes.
Regarding the causal relationships between investor sentiment and volatility in the Bitcoin market, the results of the nonparametric
causality in quantiles provided by Fig. 3 remain similar to those of returns. Indeed, we found insignificant causality running from FGI
to Bitcoin volatility, indicating no predictive power of the investor sentiment in the Bitcoin volatility. However, our results show a
significant causality in the other direction for almost all quantiles over the full and the two sub-sample periods. Our findings support

Table 3
Linear Granger causality test between FGI and Bitcoin returns/volatility.
Full sample Pre-COVID-19 COVID-19

Bitcoin returns
FGI ⇏ BTC 0.0627 0.1231 0.7570**
(0.9390) (0.8842) (0.0498)
BTC ⇏ FGI 194.4990*** 176.0210*** 53.7925***
(0.0000) (0.0000) (0.0000)

Bitcoin volatility
FGI ⇏ BTC 0.5716 1.1387 0.5710
(0.5653) (0.3208) (0.5653)
BTC ⇏ FGI 8.0859*** 15.8420*** 14.1705***
(0.0004) (0.0000) (0.0000)

Notes: This table presents the F- statistics of the Granger causality test between Bitcoin returns and FGI. The numbers between
parenthesis are the p-value of the test statistics. (**) and (***) indicate the significance of F statistics at 5% and 1% confidence levels.

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K. Mokni et al. North American Journal of Economics and Finance 60 (2022) 101657

Fig. 2. Symmetric nonparametric causality test between FGI and Bitcoin’ volatility over different periods.

those of Shen et al. (2019), suggesting that negative Bitcoin returns and high trading volume can be explained by the fear sentiment.

4.2. Asymmetric causality analysis

Next, to motivate using the nonparametric quantile-in-causality approach in an asymmetric framework, we first verify statistically
if the relationship between investor sentiment and Bitcoin returns is nonlinear. To do so, we apply the BDS test of Brock, Dechert,
Scheinkman, and LeBaron (1996). Based on the VAR(2) model residuals and 10 000 bootstrap replications, the results of this test are
reported in Table 4. As can be seen from this table, there is evidence that the null hypothesis of i.i.d residuals at various embedded
dimensions (m = 1, …, 6) is rejected. Therefore, we conclude the existence of strong evidence of nonlinearity in the relationship
between investor sentiment and Bitcoin returns, meaning that the result of causality based on the linear causality test cannot be
deemed robust, and a nonlinear-based analysis should be considered.
To this end, we consider positive and negative changes of the two variables FGI and Bitcoin returns. The nonparametric causality in
quantiles is applied by separating the positive and negative variations of the two variables. More precisely, we analyse the causality
from positive and negative investor sentiment changes to the Bitcoin returns. In this way, one can argue that fear and greed investors
predict Bitcoin returns and volatility differently. Similarly, the second direction of causality is made by investigating the ability of
positive and negative returns of Bitcoin in predicting the investor’s sentiment in the Bitcoin market. The positive and negative changes
in the Bitcoin price are defined as: BTC+ t = max(BTCt , 0) and BTCt = min(BTCt , 0), verifying BTCt = BTCt + BTCt . Similarly, the
− + −

investor sentiment is decomposed into fear sentiment (FGIt = min(FGIt , 0)) and greed sentiment (FGIt = max(FGIt , 0)), verifying
− +

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K. Mokni et al. North American Journal of Economics and Finance 60 (2022) 101657

Fig. 3. Symmetric nonparametric causality between FGI and Bitcoin’ volatility.

Table 4
BDS test result.
m=2 m=3 m=4 m=5 m=6

Full period: From 02/01/2018 to 12/10/2020

BTC 0.0164*** 0.0305*** 0.0398*** 0.0480*** 0.0504***
(0.0000) (0.0000) (0.0000) (0.0000) (0.0000)
FGI 0.0368 0.0697 0.0901 0.1021 0.1060
(0.0000) (0.0000) (0.0000) (0.0000) (0.0000)

Pre-COVID-19 period: From 02/01/2018 to 03/10/2020

BTC 0.0336*** 0.0555*** 0.0654*** 0.0722*** 0.0706***
(0.0000) (0.0000) (0.0000) (0.0000) (0.0000)
FGI 0.0346*** 0.0588*** 0.0756*** 0.0864*** 0.0894***
(0.0000) (0.0000) (0.0000) (0.0000) (0.0000)

COVID-19 period: From 03/11/2020 to 12/10/2020

BTC 0.0263*** 0.0792*** 0.0709*** 0.0143*** 0.0214***
(0.0000) (0.0000) (0.0000) (0.0000) (0.0000)
FGI 0.0361*** 0.0793*** 0.1098*** 0.1227*** 0.1268***
(0.0000) (0.0000) (0.0000) (0.0000) (0.0000)

Notes: This table presents the BDS test statistics for the FGI and Bitcoin VAR(2)-based residuals series. The numbers between parentheses indicate the
p-value. (***) indicates the significance of test statistics at 1% confidence level.

FGIt = FGI+t + FGI t , where BTCt and FGI t are the logarithmic changes of Bitcoin price and FGI.
−

The nonparametric causality test results at different quantiles over the full and the two sub-periods are provided by Fig. 4. The first
column of this figure displays the causality from fear and greed sentiment to the Bitcoin returns, while the second shows the results of

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K. Mokni et al. North American Journal of Economics and Finance 60 (2022) 101657

Fig. 4. Asymmetric nonparametric causality test results over different periods.

causality from positive/negative Bitcoin price variation to the investor sentiment. There is evidence of causality running from positive
and negative Bitcoin price changes to investors’ sentiment at almost all quantiles, except in some cases related to extreme fear and
greed sentiment. However, whether the investors fear or greed has no predictive power on the Bitcoin returns. This result implies that
both Bitcoin price increases and decreases explain future fear and greed investor sentiment. Bitcoin’s speculative nature can explain
this unidirectional causality (López-Cabarcos et al., 2019). Moreover, the cryptocurrency market behaviour is very emotional. In fact,
investors tend to get greedy when the market is rising and often sell their coins in irrational reaction following and Bitcoin price
decrease.

4.3. Quantile autoregressive regression results

To provide a more in-depth analysis of the relationship between Bitcoin returns and investors’ sentiment, we estimate a quantile
autoregressive regression (QAR) model. The model enables us to capture each variable’s effect on the other at different distribution
levels. Formally, we estimate the following models:
Qθ,t (BTC) = α0 (θ) + α1 (θ)BCT t− 1 + α2 (θ)FGI t + ∊t (θ) (12)

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K. Mokni et al. North American Journal of Economics and Finance 60 (2022) 101657

Qθ,t (FGI) = β0 (θ) + β1 (θ)FGI t− 1 + β2 (θ)BTCt + et (θ), (13)

Where Qθ,t () denotes the θth quantile of the dependent variable BTCt or FGIt . Table 5 provides the estimations of the coefficient
expressing the effect of the FGI (BTC) on BTC (FGI) at different quantiles ranging between 0.1 and 0.9, and Fig. 5 depicts these co­
efficients as well their 95% confidence interval. A close look at the results shows a significant relationship in the two directions be­
tween returns and investor sentiment in the Bitcoin market at different distributional levels, indicating that investor sentiment (Bitcoin
returns) has an immediate effect on the Bitcoin returns (investor sentiment). Over the full- and pre-COVID-19 periods, we observe a
significant positive effect of each variable on the other.
The effect of FGI on BTC increases gradually from the lower quantiles to the upper quantiles, as indicated by the increasing
estimated parameter, which reached its maximum value of 0.057 when the Bitcoin market is bullish. On the other hand, we find that
Bitcoin returns affect investor sentiment in different pictures. In fact, this positive and significant effect of Bitcoin returns on the FGI is
more pronounced when investors are fear. A plausible explanation of this finding is related to the fact that when investors are fear of
Bitcoin, this latter will be more dependent and influential on the investor behaviour.
These results show a positive influence for each variable on the other, indicating that more the investors are greed, more Bitcoin
returns increase, and more the Bitcoin returns increase, more investors are greed in their decisions in the Bitcoin market.
Regarding the COVID-19 period, the results change. In fact, we observe that investor sentiment has no significant impact on the
Bitcoin returns contrary to the sub-period before the health crisis when the effect of FGI is positively significant under all market
conditions. However, in the other direction, results reveal that the effect of Bitcoin returns is significant only at low quantile’s orders
(θ = 0.1, 0.2, 0.3). This finding could be explained by the fact that the ongoing COVID-19 crisis generated high levels of uncertainty,
pushing investors to be pessimistic. As a result, negative Bitcoin returns (bearish market condition) are attributed to mounting fears
related to the coronavirus (Baker & Wurgler, 2006). Consequently, there is strong evidence that investors’ sentiment becomes an
influential factor in the Bitcoin returns when these are negative. Therefore, investors may put more selling pressure on Bitcoin if they
become more pessimistic due to the increased uncertainty about the COVID-19 pandemic. Our findings are in line with the previous
study of Chen, Qian, Jin, Xu, and Song (2020), Conlon and Mcgee (2020), and Corbet et al. (2020).

4.4. Robustness analysis

To check the robustness of our findings, we allow gauging the sensitivity of results concerning other measures of investor sentiment
in the Bitcoin market. To do so, we consider data related to Google Trend (GT) measure, which ensures that our main conclusions are
not taken for a particular Bitcoin sentiment measure. This measure is defined as the search volume for search queries for the term
“Bitcoin.” “Google Trends” was used previously by several studies as an investor sentiment measure in the cryptocurrency market (Da,
Engelberg, & Gao, 2015; Dastgir et al., 2019; Urquhart, 2018; Lin, 2020; Béjaoui, Mgadmi, Moussa, & Sadraoui, 2021) and has the
advantage of allowing us to better understand to what extent evolving patterns in search activity related to the investors’ sentiment in
the Bitcoin market (Béjaoui et al., 2021).
We implement the same analysis of nonparametric causality by replacing the FGI with the Google trends. Fig. 6 and Fig. 7 present
the results in the symmetric and asymmetric frameworks, respectively. From these two figures, one may note that all results are almost
similar to those obtained between Bitcoin returns/volatility and the FGI. More specifically, we report a significant causality running
from Bitcoin returns/volatility to Bitcoin’s Google Trends whatever investors are pessimistic or optimistic, except in some cases related
to extreme quantiles. However, we find insignificant causality from GT to Bitcoin returns/volatility for all market conditions.
From the robustness analysis, one can argue that considering investor sentiment indices based on FGI (accounting for endogenous
and exogeneous factors) and GT (accounting only for exogeneous factors) provide similar results. Therefore, these findings provide

Table 5
Estimation results of the impact of Bitcoin (GT) on GT (Bitcoin).
OLS 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9

Panel A: Effect of FGI on BTC

Full period 0.028*** 0.029*** 0.029*** 0.023*** 0.017*** 0.013*** 0.010** 0.013* 0.032*** 0.057***
(0.006) (0.006) (0.004) (0.005) (0.004) (0.004) (0.004) (0.008) (0.009) (0.007)
Pre-COVID-19 0.027*** 0.035*** 0.026*** 0.022*** 0.017*** 0.012** 0.011** 0.008* 0.023 0.034***
(0.006) (0.004) (0.005) (0.005) (0.005) (0.005) (0.005) (0.005) (0.014) (0.012)
COVID-19 0.034 0.055 0.026 0.010 0.007 0.010 − 0.003 0.006 0.001 − 0.031
(0.022) (0.017) (0.029) (0.029) (0.030) (0.026) (0.025) (0.015) (0.018) (0.031)

Panel B: Effect of BTC on FGI

Full period 0.593 1.011*** 0.670*** 0.507** 0.352*** 0.372*** 0.293** 0.277 0.318* 0.432
(0.177) (0.244) (0.250) (0.221) (0.094) (0.090) (0.148) (0.209) (0.188) (0.308)
Pre-COVID-19 0.831*** 1.133*** 1.266*** 0.827*** 0.604*** 0.460** 0.497*** 0.399* 0.378 0.732**
(0.240) (0.280) (0.324) (0.226) (0.211) (0.189) (0.182) (0.217) (0.248) (0.304)
COVID-19 0.077 0.197*** 0.282* 0.249* 0.185 0.034 − 0.322 − 0.281 − 0.226 0.078
(0.176) (0.057) (0.065) (0.137) (0.283) (0.296) (0.318) (0.320) (0.388) (0.383)

Notes: This table provides the estimates of the coefficient α2 (θ) in Panel (A) and β2 (θ) in Panel (B) from Eqs. (12) and (13), respectively. The number
between parentheses indicates the estimated standard deviation. (*), (**), and (***) indicate the significance of the parameter at 10%, 5%, and 1%
levels, respectively.

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K. Mokni et al. North American Journal of Economics and Finance 60 (2022) 101657

Fig. 5. Estimated coefficient α1 (θ) and β1 (θ) of the QAR model.

more assurance that there is no mechanical relationship between the FGI and Bitcoin returns/volatility.
Regarding the causality analysis in the asymmetric framework, the results highlighted by Fig. 7 also indicate similar results
corroborating those obtained with FGI as investors’ sentiment measure. In fact, we find that the causality is significant only from
positive and negative Bitcoin’s returns to Google Trend under all quantiles’ orders, except in some limited cases related to the lower
and upper tail of the distribution. Therefore, our main results on the detrended cross-correlations between the oil and stock markets
hold even when considering alternative proxy of oil price.
The robustness analysis also concerns the second part of our empirical analysis. Indeed, the QAR model is also estimated by
replacing the FGI with the Google Trends index (GT) as follows:
Qθ,t (BTC) = α0 (θ) + α1 (θ)BCT t− 1 + α2 (θ)GT t + ∊t (θ) (14)

Qθ,t (GT) = β0 (θ) + β1 (θ)GT t− 1 + β2 (θ)BTC t + et (θ), (15)

where Qθ,t () denotes the θth quantile of the dependent variable BTCt or GTt . The estimation results of the parameter indicating the
impact of GT (Bitcoin)on the Bitcoin (GT) returns are provided in Table 6. This table show generally similar results as in the case of the
FGI-Bitcoin relationship. Indeed, a significant positive impact of investor sentiment (Bitcoin returns) on the Bitcoin returns (investor
sentiment) is observed in the two directions at different distributional levels over the full- and pre-COVID-19 periods. However, during
the health crisis, this effect remains significant generally under extreme market conditions. Bullish and bearish Bitcoin market con­
ditions and investors’ sentiment are extremely low/high.

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K. Mokni et al. North American Journal of Economics and Finance 60 (2022) 101657

Fig. 6. Symmetric nonparametric causality between Google trends and Bitcoin’s returns/volatility.

5. Conclusion

The Bitcoin market is an important investment outlet for investors. However, this market is characterized by very emotional
behaviour, meaning the evidence that returns/volatility and investor sentiment are widely linked. This study contributes to the debate
on the relationships between bitcoin price and investor sentiment. To do so, we used a new sentiment index, allowing the measure of
investor sentiment, and crunched the numbers into a simple meter from 0 to 100. Zero means “Extreme Fear,” while 100 means
“Extreme Greed.”
Using the nonparametric causality in quantiles in the first (mean) and second (variance) moments, we find that Bitcoin price has a
significant predictive power on the investor sentiment whether the investors are optimistic or pessimistic before and over the COVID-
19 period. However, we find no causality running from investor sentiment to Bitcoin prices. Moreover, the COVID-19 crisis has no
effect on the causal relationships between the two variables. Further analysis separating the positive changes from negative ones shows
an asymmetric causality observed only during the pandemic.
To provide a more in-depth analysis of the relationship between the returns and investor sentiment in the Bitcoin market, we
estimate an autoregressive quantile regression model controlling for the immediate effect of each considered variables on each other.
Before the COVID-19 pandemic, we find evidence of a significant positive effect of investor sentiment on the Bitcoin returns, indicating
that more investors are greed more Bitcoin returns increase at all quantile orders. On the other hand, we find that Bitcoin returns
positively affect investor sentiment, whatever the investor sentiment distribution level. However, during the ongoing COVID-19 crisis,
the results highlight that investor sentiment affects Bitcoin returns only at lower quantiles of Bitcoin returns.
To check the robustness of our results, we used the Google Trends of the term “Bitcoin” as an alternative measure of investor

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K. Mokni et al. North American Journal of Economics and Finance 60 (2022) 101657

Fig. 7. Asymmetric nonparametric causality test results between Bitcoin and Google trends.

sentiment. More specifically, we implement the nonparametric causality testing procedure between this index and Bitcoin returns/
volatility and we re-estimate the QAR model over the whole study period and the two sub-periods. Overall, this analysis shows that our
baseline findings generally still hold.
Our results have several implications for investors and policymakers. First, since past investor sentiment measured by FGI and GT
have no significant effect on the future situation of the Bitcoin market, crypto-investors should not use this factor to predict Bitcoin’s
returns and volatility. However, the highlighted significant causal effect from Bitcoin to sentiment indicates that the past Bitcoin
market shocks can be transmitted to the investor sentiment. This finding suggests that Bitcoin is a potential determinant of future
investor behaviour in the cryptocurrency markets. Such a result could be useful to policymakers since managing investor behaviour
can mitigate its consequences such as speculation and herding that lead to the financial market perturbation. Second, another result
claiming an immediate positive effect between Bitcoin and investor sentiment, which is insignificant during distressed periods such as
the COVID-19 pandemic, can be useful for investors. Indeed, Bitcoin can serve as safe-havens during turbulent economic and market
conditions. Finally, this empirical study may provide marketers with valuable analysis and knowledge and help them make the best
trading strategies for cryptocurrency trading, especially Bitcoin.

14
 K. Mokni et al.
Table 6
Estimation results of the impact of Bitcoin (GT) on GT (Bitcoin).
OLS 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9

Panel A: Effect of GT on BTC(α2 (τ))

Full period 0.067*** 0.023*** 0.045*** 0.027*** 0.023*** 0.020*** 0.036*** 0.030*** 0.021 0.037**
(0.003) (0.010) (0.004) (0.011) (0.002) (0.004) (0.012) (0.013) (0.028) (0.018)
Pre-COVID-19 0.013 0.058*** 0.014 0.032*** 0.012* 0.020*** 0.033* 0.016 0.013* 0.048*
(0.024) (0.008) (0.010) (0.013) (0.007) (0.006) (0.017) (0.025) (0.007) (0.025)
COVID-19 0.070 0.139*** 0.068** 0.017 0.039 0.028 0.043*** 0.031* 0.057 0.040
(0.058) (0.026) (0.033) (0.051) (0.028) (0.023) (0.018) (0.017) (0.042) (0.184)
15

Panel B: Effect of BTC on Google Trends:(β2 (τ))

Full period 0.133*** 0.304*** 0.161*** 0.164*** 0.196*** 0.103*** 0.224*** 0.287*** 0.185*** 0.249***
(0.045) (0.071) (0.034) (0.032) (0.031) (0.033) (0.032) (0.033) (0.062) (0.019)
Pre-COVID-19 0.133*** 0.550** 0.109 0.212*** 0.377*** 0.718*** 0.784*** 0.269 0.506 0.406***
(0.045) (0.273) (0.069) (0.066) (0.159) (0.172) (0.167) (0.180) (0.407) (0.043)

North American Journal of Economics and Finance 60 (2022) 101657

COVID-19 0.280*** 0.512*** 0.697*** 0.182 0.095 0.034 − 0.115 − 0.349*** − 0.310*** − 0.319
(0.080) (0.127) (0.117) (0.120) (0.116) (0.110) (0.102) (0.052) (0.101) (0.212)

Notes: This table provides the estimates of the coefficient α2 (θ) in Panel (A) and β2 (θ) in Panel (B) from Eqs. (14) and (15), respectively. The number between parentheses indicates the estimated standard
deviation. (*), (**), and (***) indicate the significance of the parameter at 10%, 5%, and 1% levels, respectively.
K. Mokni et al. North American Journal of Economics and Finance 60 (2022) 101657

CRediT authorship contribution statement

Khaled Mokni: Formal analysis, Software, Funding acquisition, Supervision, Writing – review & editing. Ahmed Bouteska:
Conceptualization, Resources, Validation. Mohamed Sahbi Nakhli: Data curation, Methodology, Project administration,
Investigation.

Declaration of Competing Interest

The authors declare that they have no known competing financial interests or personal relationships that could have appeared to
influence the work reported in this paper.

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