Monetary Policy Uncertainty and Cryptocurrency Market Uncertainty Evidence from Time-Varying VAR and Transmission Channels

This paper investigates the impact of monetary policy uncertainty on cryptocurrency market uncertainty using a time-varying parameter vector autoregression (TVP-VAR) model. Unlike previous studies, it jointly employs the shadow rate and the monetary policy uncertainty (MPU) index to capture monetary policy conditions beyond conventional interest rate movements. The results show substantial time variation in transmission effects. Shadow-rate shocks increase both cryptocurrency price uncertainty and cryptocurrency policy uncertainty, especially after 2021, which is consistent with the liquidity and risk-appetite transmission channel. By contrast, MPU shocks have a limited effect on cryptocurrency uncertainty over most of the sample, consistent with the information and signaling channel. Both types of shocks have a negative effect on Bitcoin returns, suggesting speculative rather than safe-haven behavior. Overall, the findings challenge the view that cryptocurrencies are entirely isolated from central bank actions.