Financial Literacy, Investor Sentiment, and Bitcoin Returns: Panel Evidence From the Eurozone

Abstract

This study investigates the moderating role of financial literacy in the relationship between investor sentiment and Bitcoin returns in the Eurozone context. Using monthly panel data for 15 Eurozone countries from 2012 to 2024, we focus on Bitcoin as a representative cryptocurrency alongside key macro-financial variables. A three-layered empirical approach is employed to capture long-run equilibrium relationships, country-specific short-run coefficients, and heterogeneous effects across the return distribution through pooled least squares, panel Autoregressive Distributed Lag (ARDL), and quantile regression methods. The findings primarily reveal that investor sentiment has a significant positive impact on Bitcoin returns, and financial literacy strengthens the impact of sentiment on returns in the aggregate long run and the country-specific short run. This indicates that sentiment-induced effects on cryptocurrency return are significantly stronger in more financially literate environments. Short-run dynamics show rapid error correction of Bitcoin returns. The study's novel contribution is integrating financial literacy into the sentiment–returns nexus for the cryptocurrency market.