On the inefficiency of Bitcoin

Abstract

Urquhart (2016) investigated the market efficiency of Bitcoin by means of five different tests on Bitcoin returns. It was concluded that the Bitcoin returns do not satisfy the efficient market hypothesis. We show here that a simple power transformation of the Bitcoin returns do satisfy the hypothesis through the use of eight different tests. The transformation used does not lead to any loss of information.

Volatility co-movement between Bitcoin and Ether

“…Recently the literature on cryptocurrencies has rapidly emerged. For instance, recent studies have examined the hedging capabilities of Bitcoin against other assets (Dyhrberg 2016a(Dyhrberg , 2016bBaur et al, 2017;Bouri et al, 2017), the market efficiency of cryptocurrencies (Urquhart, 2016;Nadarajah and Chu, 2017), and the existence of bubbles in cryptocurrencies (Cheah and Fry, 2015;Corbet et al, 2017), while the price volatility of cryptocurrencies has been studied by Katsiampa (2017) and Phillip et al (2018), among others. More recently, the literature has started examining the connectedness of cryptocurrencies to mainstream assets.…”

Crypto‐currencies – An Introduction to Not‐so‐funny Moneys

“…Urquhart () looks at the efficiency of Bitcoin prices and finds that prices over his full sample are inefficient, though a sub‐sample analysis suggests that Bitcoin efficiency may be improving in the latter half of the sample. Nadarajah and Chu () suggest applying a power transform to the return series, and suggest the test results then imply efficiency. Jiang et al .…”

Value-at-Risk and Expected Shortfall for the Major Digital Currencies

“…Urquhart (2016) working on an earlier sample concludes that BTC in an inefficient market but may be in the process of moving towards an efficient market. On the other hand, Nadarajah and Chu (2017) using an odd power transformation for the BTC returns, they indicate that BTC is actually market efficient.…”