Crypto Cycle and US Monetary Policy: Factor-Based VAR and OLS Analysis
DOI:
https://doi.org/10.63556/tisej.2026.1921Keywords:
US Monetary Policy, Crypto Currency Prices, VAR Model, Global Financial CycleAbstract
This study examines the effects of U.S. monetary policy and global financial conditions on cryptocurrency prices over the period from April 2020 to May 2026. The common price dynamics of nine cryptocurrencies are summarized into a single latent cryptocurrency factor using Principal Component Analysis. The first principal component explains 74% of the total variance, confirming the existence of a dominant systemic factor underlying cryptocurrency markets. Short run dynamics are estimated through a VAR framework, while long run relationships are estimated using OLS with Newey–West HAC standard errors. Model robustness is verified through the AR characteristic polynomial and Bai–Perron multiple structural break tests. Impulse response analysis indicates that positive shocks to SOFR and the U.S. 2-year Treasury yield generate persistent negative responses in the cryptocurrency factor, whereas responses to its own innovations remain negative until approximately the thirtieth period, reflecting mean reversion dynamics. Forecast error variance decomposition attributes 98.89% of the factor’s variance to endogenous shocks, while commodity variables exert a greater exogenous influence than monetary policy variables. OLS estimates further reveal that gold and Brent oil significantly affect cryptocurrency valuations, whereas monetary policy variables exhibit delayed and shock driven effects. Overall, cryptocurrency prices exhibit a multi layered pricing structure shaped by endogenous momentum in the short run, monetary policy shocks in the medium run, and global commodity cycles together with structural growth trends in the long run.
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