BITCOIN PRICE VOLATILITY AND HEDGING CAPACITY

Bitcoin is an encrypted, peer-to-peer network with a decentralized mechanism to promote digital exchange. It can behave like fiat money, commodity, or even an asset. Arguably, its intense market responses do offer shocks to investors encouraging the researchers to investigate Bitcoin's price behavior. The purpose of this paper is to summarize the factors contributing to Bitcoin volatility as well as the hedging capacity of Bitcoin. In this systematic literature review (SLR), relevant articles have been examined from Bitcoin's origination to-date. This review intends to build awareness of factors that trigger Bitcoin volatility and how effectively Bitcoin can be used for the process of diversification. Several studies have evidenced that traditional financial markets volatilities and investor sentiment play a decisive role in igniting Bitcoin volatilities. Some scholars argue the inception of Bitcoin futures has contributed to Bitcoin volatility during the Bitcoin crash period of 2017 to 2018. Lastly, a large stream of research proves the hedging and diversification capacity of Bitcoin. The findings are mostly consistent with correlating Bitcoin against different assets in different periods.