Information flow between Bitcoin and other investment assets

Abstract

This paper studies the causal relationship between Bitcoin and other investment assets. We first test Granger causality, and then calculate transfer entropy as an information theoretic approach. We find that transfer entropy clearly identifies causal interdependency between Bitcoin and other assets, including gold, stock and U.S. dollars, unlike the Granger causality test. However, for symbolic transfer entropy, the pattern in return series shows an asymmetric information flow from other assets to Bitcoin. Our results imply that the Bitcoin market actively interacts with major asset markets, and its long-term equilibrium, as a nascent market, gradually synchromizes with that of other investment assets.