Relationship between price and volume in the Bitcoin market

Abstract

Purpose Bitcoin has recently become the focal point of investors as a digital currency and an alternative payment method. Despite Bitcoin being in the spotlight, a gap in the literature on its price-setting behaviors has been observed. This study aims to contribute to the literature by investigating the relationship between Bitcoin price and volume in the period between January 1, 2012 and April 7, 2018 through a symmetric and asymmetric causality test. Design/methodology/approach Daily price and volume data relevant to Bitcoin traded in the Bitstamp market were obtained from www.bitcoincharts.com. Within the framework of data applicable for analysis, the data set for this study includes a total of 2,286 observations for the period between January 1, 2012 and April 7, 2018. Findings Based on the results of the standard causality test, a causality relationship was determined from price to volume. Based on the results of the asymmetric causality test between positive and negative shocks of variables, a unilateral causality relationship was determined from negative shocks in Bitcoin prices to negative shocks in trading volume as well as from positive shocks in trading volume to positive shocks in prices. Furthermore, it was found that the relationship between Bitcoin price and volume is cointegrated. Practical implications The empirical results can be used by investors and portfolio managers to make trading decisions. Originality/value The contribution of this paper to the literature is that it is the first study on the symmetric and asymmetric causality relationship between Bitcoin price and volume. Moreover, this paper reveals short- and long-term behaviors of Bitcoin using the cointegration test used for determining the long-term relationship between Bitcoin price and volume.

Do economic crises cause trading in Bitcoin?

“…Their results reveal that volume cannot help predicting volatility of Bitcoin price return. Gemici and Polat (2019) conduct a causality test between volume and Bitcoin price and found a causality relationship was determined from price to volume. Their findings are very interesting: a unilateral causality relationship was determined from negative shocks in Bitcoin prices to negative shocks in trading volume, the same is observed from positive shocks in trading volume to positive shocks in prices.…”

Price dynamics of cryptocurrencies in parallel markets: evidence from Bitcoin exchanges in Brazil

“…Such price movements are unusual for traditional currencies, suggesting that the determinants for price formation do not follow rules established in previous theories (Ciaian et al, 2016), or in the words of Mai et al (2018) traditional explanatory variables for currency valuation fall short. Gemici and Polat (2019) find a unilateral causality relationship determined from negative shocks in bitcoin prices to negative shocks in trading volume as well as from positive shocks in trading volume to positive shocks in prices. Also, some studies found evidence that bitcoin prices are a financial bubble (Geuder et al, 2019;Chaim and Laurini, 2019).…”

An Investment Value Analysis of Bitcoin Trading

“…In other words, Bitcoin is high-risk, and investors continue to trade and expand their trading volume precisely because Bitcoin assures them that the price will continue to rise. At the same time, the weak effect of Bitcoin trading volume on price also prevents investors from being dissatisfied with Bitcoin's price drop [7].…”