Analyzing the Impact of Political Uncertainty on Bitcoin Volatility During the US Election Period 2023-2024

An Application of the GARCH-MIDAS Model

Abstract

This study aimed to analyze the impact of short-term and long-term political uncertainty
on Bitcoin volatility during the U.S. election period (2023–2024), and to assess its effectiveness as
a hedging tool during periods of political tension. The study relied on daily data of Bitcoin returns,
alongside indicators such as: Economic Policy Uncertainty (EPU), the Implied Volatility Index
(VIX), and Political Events (POL_EVT), using the GARCH-MIDAS model methodology that
integrates variables with different time frequencies.
The results showed that Bitcoin reacts significantly to short-term political shocks (sudden
events) and long-term factors (such as economic policies), with its volatility increasing as
uncertainty escalates. It also revealed that Bitcoin is not considered a safe haven like gold or
government bonds, but rather a high-risk asset negatively affected by political tensions, despite its
quick response to developments. Additionally, the model used (GARCH-MIDAS) proved effective
in capturing the nonlinear dynamics between the variables, compared to traditional models,
highlighting the importance of integrating political and economic factors in analyzing
cryptocurrency volatility.