An analysis of investors’ behavior in Bitcoin market

Abstract

As an emerging digital asset, Bitcoin has been traded for more than a decade, reaching an impressively high market capitalization and continuing to expand its volume of trading at a rapid pace. Many countries have legalized or are considering legalizing a trading platform for this asset, and a set of companies worldwide accept it as a medium of exchange. As a result of this expansion, many studies in finance literature have focused on studying the efficiency of this cryptocurrency. In line with this literature, this paper investigates, using the abnormal returns and abnormal trading volumes methodologies, the dynamics of investors’ reaction to the arrival of unexpected favorable and unfavorable information regarding the Bitcoin market in the context of the three famous hypotheses: the overreaction, the uncertain information, and the efficient market hypotheses. Overall, we find evidence confirming that the Bitcoin market tends to mature over time. More precisely, over the entire analyzed period, investors behave in accordance with the predictions of the uncertain information hypothesis when positive and negative events occur. However, splitting the timespan into sub-periods provides interesting insights. Remarkably in this respect is the fact that starting with the second sub-period, the response of investors in the Bitcoin market supports, in a moderate manner, the postulate of the efficient market hypothesis when favorable events are addressed. Moreover, our findings reveal that during the pandemic period, the efficiency of Bitcoin has increased, thus turning this stressful period into an advantage for this cryptocurrency. This improved market efficiency is also supported by the abnormal trading volume analysis.

Exploring the asymmetric effect of COVID-19 pandemic news on the cryptocurrency market: evidence from nonlinear autoregressive distributed lag approach and frequency domain causality

“…Thus, including Bitcoin in the portfolio can mitigate the risk of a sudden decline in the value of investments triggered by exogenous shocks such as COVID-19 (Marobhe, 2022 ). Like Diaconaşu et al ( 2022 ), we may notice that the Bitcoin market tends to mature. Besides, the Wald test results reveal that long-run asymmetry effects are confirmed merely in the case of PI.…”

“…Table 4 shows the definitions of the whole covered variables. We selected Bitcoin as a proxy for the cryptocurrency market since it is the primary, largest-capped (Raza et al 2022b ), and most prominent virtual currency (Anamika et al 2021 ; Tiwari et al 2019 ), recognized as a substitute payment method by many traders (Feng et al 2018 ; Burggraf et al 2021 ; Diaconaşu et al 2022 ; Karaömer, 2022 ). According to Sebastião and Godinho ( 2021 ), Bitcoin’s “ecosystem” possesses many characteristics, including immateriality, decentralization, accessibility, and consensualness.…”

Predicting Bitcoin Trends Through Machine Learning Using Sentiment Analysis with Technical Indicators

“…The cryptocurrency market has grown rapidly and market awareness continues to increase [62]. As the number of institutions and individual investors increases, cryptocurrencies are being recognized as a type of asset.…”

Factors influencing the adoption of cryptocurrency in Bangladesh: an investigation using the technology acceptance model (TAM)

“…Cryptocurrencies such as Bitcoin operate on a decentralized network of computers, which reduces transaction costs and improves efficiency (Auer and Claessens, 2018). While cryptocurrencies may not be as efficient as traditional currencies in terms of information dissemination, their efficiency is improving over time (Diaconas ¸u et al, 2022). Despite regulatory concerns and technical restrictions, blockchain technology has the potential to transform the financial industry and increase financial inclusion, particularly in developing nations (Kakavand et al, 2017).…”