China's ICO Ban & The Return-Volume Relationship Of Bitcoin Market

There is no doubt that the Bitcoin market have had a significant growth from inception in 2009 until 2017.We used daily data of return(from Bitcoin closing price)and the trade volume of bitcoin to estimate a bivariate Vector Auto-Regressive system of equations to establish the existence of directional causality between the return and the trade volume of Bitcoin.We showed that the ICO ban in China had significant distortion in the structural relationship of the return and volume in the Bitcoin market both on the average levels and in relationship.Like every other market,we showed that there exists a significant volume-return relationship in the Bitcoin market,wherein there exist a uni-directional causality running from the return of Bitcoin to its trade volume ex-ante ICO ban,but there is no directional causality existing ex-post ICO ban.More so,we adopted the Impulse Response Function and Forecast Error Variance Decomposition to further analyse the role each variable in the system plays in the adjustment to shock path of a shock in the system variables as well as the contribution of each system variable to the forecast error variances.The results show return responds with an increase(decrease)in the first 24 hours to a trade volume shocks ex-ante(ex-post).The system responds more to self-shock than external shocks.Furthermore,shocks in the Bitcoin market internalize earlier after the ICO ban.The shocks fizzle out after 8 days ex-post relative to 11 days ex-ante.Upon these findings,we,therefore,recommend that both existing and new investors in the Bitcoin market should invest with caution,since external shocks to the system are capable of altering the behaviour of the market.In addition,investors in the Bitcoin market should not panic in response to shocks in the market as these shocks will evidently be internalized within two weeks.