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The Effect of Financial Stress on Bitcoin Volatility

Violeta Díaz & Jialin Zhao

Applied Finance Letters2025https://doi.org/10.24135/afl.v14i.1006article
ABDC B
Weight
0.50

Abstract

This study contributes to the growing literature on the determinants of Bitcoin volatility by examining its relationship with financial stress. Building on prior research linking Bitcoin volatility to broader economic and financial uncertainty, we employ a combination of regression analysis, a GARCH-MIDAS framework, and a Vector Autoregression (VAR) model to evaluate both the static and dynamic effects of financial uncertainty on Bitcoin. Preliminary regression results indicate that financial stress measures significantly and negatively predict Bitcoin volatility. The GARCH-MIDAS model confirms these results, showing a strong negative impact of financial stress on the long-term component of volatility. VAR analysis further reveals that Bitcoin volatility decreases in response to shocks in financial stress indicators. These findings highlight Bitcoin’s sensitivity to systemic financial conditions and carry important implications for risk management among cryptocurrency traders, institutional investors, and financial regulators.

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https://doi.org/https://doi.org/10.24135/afl.v14i.1006

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@article{violeta2025,
  title        = {{The Effect of Financial Stress on Bitcoin Volatility}},
  author       = {Violeta Díaz & Jialin Zhao},
  journal      = {Applied Finance Letters},
  year         = {2025},
  doi          = {https://doi.org/https://doi.org/10.24135/afl.v14i.1006},
}

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The Effect of Financial Stress on Bitcoin Volatility

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Evidence weight

0.50

Balanced mode · F 0.40 / M 0.15 / V 0.05 / R 0.40

F · citation impact0.50 × 0.4 = 0.20
M · momentum0.50 × 0.15 = 0.07
V · venue signal0.50 × 0.05 = 0.03
R · text relevance †0.50 × 0.4 = 0.20

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