The relationship between bitcoin trade volume and inflation: evidence from nonlinear cointegration

This study investigates the long-run relationship between local Bitcoin trade volume and inflation across a group of major Bitcoin markets, including both developed and emerging markets. While the literature has examined short-term macroeconomic drivers of cryptocurrency activity, studies on long-run cointegration between trade volume and macroeconomic variables remain limited. Using the nonlinear cointegration approach of Kapetanios et al. (Econ Theory 22(2):279–303, 2006), we explore whether inflation and Bitcoin trade volume are cointegrated across seven countries: the USA, the UK, Canada, China, Russia, South Africa, and Nigeria. Our results reveal that local Bitcoin trade volume and inflation are cointegrated in all countries in the sample except for Nigeria, indicating a long-run equilibrium relationship in most cases. These findings underscore the importance of accounting for macroeconomic conditions when analyzing cryptocurrency markets. The results carry policy implications for both investors and policy makers, emphasizing the need to monitor the evolving interaction between inflation and cryptocurrency markets when assessing financial stability risks, particularly during periods of sustained inflation.