Price Appreciation and Roughness Duality in Bitcoin: A Multifractal Analysis

Abstract

Since its launch in 2009, bitcoin has thrived, attracting the attention of investors, regulators, academia, and the public in general. Its price dynamics, characterized by extreme volatility, severe jumps, and impressive long-term appreciation, suggest that bitcoin is a new digital asset. This study presents a comprehensive overview of the fractality of bitcoin in a high-frequency framework, namely by applying Multifractal Detrended Fluctuation Analysis (MF-DFA) and a Multifractal Regime Detecting Method (MRDM) to Bitstamp 1 min bitcoin returns from January 2013 to July 2020. The results suggest that bitcoin is multifractal, with smaller and larger fluctuations being persistent and anti-persistent, respectively. Multifractality comes from significant long-range correlations, which cast some doubts on the informational efficiency at this frequency, but mainly comes from fat-tails, which highlights the significant risks undertaken by investors in this market. Our most important result is that the degree and richness of multifractality is time-varying and increased after 2017, when volumes and prices experienced an explosive behaviour. This complexity puts into perspective the duality of bitcoin: while it is characterized by long-run attractiveness and increasing valuation, it also has a high short-run instability. Hence, this study provides some empirical evidence supporting the relationship between these two observable features.

The Impact of COVID-19 on Weak-Form Efficiency in Cryptocurrency and Forex Markets

“…In other words, the measure is evaluated in terms of the multifractal degree of the time series. This measure is called "market deficiency measure" and can be estimated as follows [25,39,[41][42][43]:…”

Persistence in complex systems

“…On CN Links: [207], Epidemics: [208,209], Message, memes: [210,211] Of CN Links: [212,213,214], Nodes: [215], Hubs: [216], Communities: [217], Person's social signature: [218], Patterns: [219,220], Processes Rumors: [221], Epidemics: [222], Emotions: [223] Economics and Market Analysis Inflation [224,225,226,227,228,226,229,227,230,231,228] Expected Returns [232,233,234,233,235,236] Exchange Rates and Crypto-currencies [237,238,239,240,241,242,243,244,245,246,246,247] Stock Market [15,248,…”

“…In [239] the efficiency of Bitcoin market compared to gold, stock and foreign exchange markets is analyzed by using a MF-DFA approach. In [242] a MF-DFA and a Multifractal Regime Detecting Method are applied to study the multi-fractality of bitcoin returns in the period 2013-2020. The results obtained suggest that bitcoin is multifractal, with significant long-range correlations which expose the informational efficiency of the cryto-currency.…”