CBDC news sentiment on the stock market and cryptocurrencies

Abstract

This study aims to analyze the impact of news related to Central Bank Digital Currency (CBDC) on the stock and cryptocurrency markets in the United States. Using the Time-Varying Parameter Vector Autoregression (TVP-VAR) method, this study examines the responses of the S&P 500 index, the CBOE Volatility Index (VIX), Bitcoin trading volume, and Ethereum trading volume to CBDC news from January 2020 to December 2023. The results indicate that CBDC news has a positive effect on stock market prices, but its impact on market volatility is negligible. Furthermore, Bitcoin and Ethereum trading volumes exhibit a declining trend in response to the rapid development of CBDC news. Although CBDC development is still in its early stages, these findings provide insights into the potential influence of CBDC news on financial market behavior, particularly in shaping investor sentiment and digital asset trading patterns. The study suggests that policymakers and investors should closely monitor CBDC developments, as they may gradually affect the financial ecosystem. Future research should further explore the long-term effects of CBDCs on financial market stability and cryptocurrency adoption.