Objective: The unprecedented move of demonetization by the Prime Minister of India- Mr.Modi, to fulfill his vision for cash less and corruption free India, has sparked new interest in Bit coin due to the shortage of supply of cash and lack of liquidity. This study focuses to examine the relevance of abnormal return and volatility of Bit coins and the most significant economic event of demonetization in India in the year 2016.
Methodology: An event study framework is adopted to study the tectonic impact of demonetization on Bit coin exchanges. Focusing on daily Bit coin prices from a leading Bit coin exchange in India, Uno coin the subsequent effect on the Demonetization in India is analyzed.
Findings: Using the parametric T-Test it is strongly evident that Bit coin prices moves significantly upwards after the announcement of Demonetization. Abnormal return (AR) and cumulative abnormal return (CAR) from the constant mean return model of bit coin prices are statistically significantly revealed. The finding also suggests that demonetization has increased the Bit coin volatility.
Conclusion: The increase in volatility and prices of bit coin would be mainly being attributed to the fact that demonetization generates a cashless economy, which attracted large investors in Bit coin, which eventually led to increase in the trading volume in Indian Bit coin exchanges.
Novelty: This study is unique from other research contributions as it focuses on analyzing the effects of 2016-demonitization on bit coin prices using an event study methodology. It also provides insights to economist and experts in the field of crypto currencies to assess the impact of economic events like demonetization on crypto currencies. It also gives opportunity for the bitcoin investors to invest in crypto currencies by understanding the impact of economic events on crypto currencies.