Bitcoin-to-gold ratio and stock market returns

Abstract

Using linear and quantile regressions and daily data covering August 7, 2015, to December 30, 2024, we show that the ratio of Bitcoin-to-gold (BG) prices exerts a significantly positive effect on U.S. stock returns during the COVID-19 pandemic and post-pandemic periods, which holds when accounting for volatility, term spread, default spread, inflation, and liquidity. No significant impact is observed in pre-pandemic. To provide more economic explanations, we reveal that the significant impact of the BG ratio on stock returns during and post-pandemic stems from the channel of risk aversion (appetite). When Bitcoin is replaced with Ethereum, the results remain robust.