Measuring Crypto-asset Price and Policy Uncertainty

How uncertain are investors about cryptocurrencies, and what drives their collective uncertainty? In their March 2021 paper entitled “The Cryptocurrency Uncertainty Index”, Brian Lucey, Samuel Vigne, Larisa Yarovaya and Yizhi Wang present a Cryptocurrency Uncertainty Index (UCRY) based on news coverage, with two components defined as follows:

1. UCRY Policy -weekly rate of cryptocurrency policy uncertainty news minus average weekly observed rate, divided by standard deviation of weekly observed rate, plus 100.
2. UCRY Price – weekly rate of cryptocurrency price uncertainty news minus average weekly observed rate, divided by standard deviation of weekly observed rate, plus 100.

They distinguish between these two types of cryptocurrency uncertainty to understand differences in behaviors between informed (policy-sensitive) and amateur (price-sensitive) investors. Using 726.9 million relevant date/time-stamped news stories during December 2013 through February 2021, they find that: (more…)