An Analysis of Bitcoin’s Price Dynamics

Abstract

This paper aims to enhance the understanding of which factors affect the price development of Bitcoin in order for investors to make sound investment decisions. Previous literature has covered only a small extent of the highly volatile period during the last months of 2017 and the beginning of 2018. To examine the potential price drivers, we use the Autoregressive Distributed Lag and Generalized Autoregressive Conditional Heteroscedasticity approach. Our study identifies the technological factor Hashrate as irrelevant for modeling Bitcoin price dynamics. This irrelevance is due to the underlying code that makes the supply of Bitcoins deterministic, and it stands in contrast to previous literature that has included Hashrate as a crucial independent variable. Moreover, the empirical findings indicate that the price of Bitcoin is affected by returns on the S&P 500 and Google searches, showing consistency with results from previous literature. In contrast to previous literature, we find the CBOE volatility index (VIX), oil, gold, and Bitcoin transaction volume to be insignificant.

Advanced model calibration on bitcoin options

“…A lot of research has been carried out to gain insight into the dynamics of the bitcoin price. A substantial part of this research focuses on time series modelling, see for instance (Kristoufek 2013;Garcia et al 2014;Kjaerland et al 2018). These authors explain the bitcoin price fluctuations using several technical and socio-economical factors, e.g.…”

Libra Announcement: Does Give Impact on Bitcoin's Price?

“…But in fact, the price of bitcoin has a correlation with the S&P 500 Index, the negative trend in the price of the Bitcoin affects the S&P 500 Stock Index, both negatively and positively. (Dyhrberg, 2016;Kjaerland, Khazal, Krogstad, Nordstrøm, & Oust, 2018;Yermack, 2015). Furthermore, Kjaerland et al (2018) find that the S&P 500 has a positive impact on the price of Bitcoin.…”

“…(Dyhrberg, 2016;Kjaerland, Khazal, Krogstad, Nordstrøm, & Oust, 2018;Yermack, 2015). Furthermore, Kjaerland et al (2018) find that the S&P 500 has a positive impact on the price of Bitcoin. This study also shows that the S&P 500 is the independent variable with the largest coefficient, so it gives the most significant effect on the price of Bitcoin.…”

Alternative Assets and Cryptocurrencies

“…Henriques and Sadorsky (2018) use multivariate GARCH-type models to show that there is an economic value for risk averse investors to replace gold by Bitcoin in investment portfolios. Kjaerland et al (2018) identify dynamic pricing factors for Bitcoin using autoregressive distributed lags (ADL) and GARCH. They find that the Google search indicator and returns on the S&P 500 stock index are significant pricing factors.…”