Evolution of bitcoin as a Financial Asset

Abstract

The cryptocurrency market debate resumed in 2020 with renewed vigour as the price of Bitcoin surpassed late 2017 highs. This study aims to analyse possible factors of Bitcoin’s pricing at various cryptocurrency market development stages — before the 2017 price bubble, after and during the COVID-19 pandemic. The main method of analysis is a generalized autoregressive conditional heteroskedasticity model with conditional generalized error distribution (GARCHGED). Two groups of indicators are used as possible factors related to the Bitcoin dynamics. The first group consists of various quantitative indicators directly related to Bitcoin (the so-called internal factors) — the volume of exchange trade, the volume of transactions in the Bitcoin blockchain, the number of new and active wallets, hash rate, the sum of fees paid in the blockchain, as well as the dynamics of Google Trends search queries. The second group is the return on various financial assets — stock and bond indexes, commodities, and currency markets. The results of the analysis demonstrate the absence of a stable correlation between any of the factors under consideration and Bitcoin returns in all the periods that we focus on. In the period before the 2017 price bubble, the internal factors and Bitcoin returns showed generally co-directional dynamics, but the situation changed in 2018. In early 2021, the correlation between Bitcoin and traditional financial assets returns has increased significantly. We can conclude that Bitcoin is becoming a popular means of diversification as a high-risk asset, which, however, follows the pattern of a speculative bubble at the beginning of 2021. The increased demand for the need to invest in Bitcoin using various exchange-traded instruments (ETFs for cryptocurrencies) may soon lead to a further increase in the price of this cryptocurrency if such instruments are registered on the exchange.

The effect of the fear index, dollar index and bitcoin on volatility: An example from Borsa Istanbul

“…In the literature, the interrelation between stocks, the FI, the dollar index and bitcoin has been examined with various combinations. Akkaya (2021) looked at the influence of stock, the FI and the dollar index on the volatility of bitcoin; Su, Xi, Tao, and Umar (2022) examined the FI and bitcoin volatility; Wu, Pandey, and Dba (2014) investigated the interrelation between stocks and bitcoin; Shilov and Zubarev (2021) looked at the interrelation between financial assets, such as dollars and stocks, and bitcoin volatility; Baba and Sakurai (2011) examined the interrelation between the FI and macroeconomic variables; and Kliger and Kudryavtsev (2013); Emna and Myriam (2017) and Badshah (2018) studied the interrelation between the FI and stock volatility.…”

A Novel Weighted Hybrid Recommendation System using Sharpe Ratio for a Profitable Diversified Investment Portfolio

“…On the same lines, M. Baddeley et al [19] lamented the herding behavior in the financial markets. K. D. Shilov and A. V. Zubarev [20] presented the discussion on Bitcoin as a possible investment venue. E. V. Sapir and I.…”