The explosion in cryptocurrencies: a black hole analogy

Abstract

Using an analogy between finance and astrophysics, this study aims to investigate whether there exists a mechanism that can describe the explosive increase in the number of traded cryptocurrencies and the cryptocurrency market in general. In physics, the Schwarzschild radius indicates that black holes are constantly expanding because of their mass increase. Enriching this analogy, we consider the cryptocurrency market as a self-gravitational body whose mass is denoted by (1) the number of traded cryptocurrencies and (2) in terms of increasing market capitalization for a given number of traded cryptocurrencies. By analyzing weekly snapshot data of all traded cryptocurrencies from January 4, 2009, to June 14, 2020, we find evidence that the above-mentioned mechanism exists. The results clearly indicate the self-gravitational property of the cryptocurrency market, which is direct evidence toward the hypothesis that the changes in the traded cryptocurrencies are a positive function of the previous period’s number of traded cryptocurrencies.

Behavioural finance and cryptocurrencies

“…As of 13 November 2021, the total capitalisation of the cryptocurrency markets stands well above 2.5 trillion dollars. Hence, it is ostensible that the cryptocurrency market has exhibited a significant increase both in its intensive, as well as its extensive margins (Ballis and Drakos, 2021). To a layman, the cryptocurrency market may be synonymous only to high returns and extreme volatility; however this has proved to be a holistic approach leading to erroneous conclusions regarding the dynamics pertinent to the cryptocurrency market.…”

Crypto-asset market development: the role of country’s institutional quality

“…The third group of research investigates the determinants of the Bitcoin trade. Research confirms the positive effect of the previous period's number of traded cryptocurrencies on the current number (Ballis and Drakos, 2021). Previous research does not confirm the strong impact of macro-financial variables on Bitcoin price and trading volume.…”

The Skewness‐Kurtosis plane for cryptocurrencies' universe

“…In the same manner, the variable Mineable takes the value 1 if the cryptocurrency can be mined, while it takes value 0 when it cannot. For the purposes of this research, we follow the analysis of Ballis and Drakos (2021) regarding the timeline of the expansion of the cryptocurrency market, and we estimate two distinct periods of the cryptocurrency market.…”

“…The launch of the Bitcoin (Nakamoto (2008))—the first cryptocurrency—was followed by a surge in the creation of other altcoins 1 resulting in the explosive expansion of the cryptocurrency market over the past decade, both in terms of its intensive and extensive margin (Ballis and Drakos (2021)). What this essentially means is that this expansion consisted not only of an immense increase in the number of traded cryptocurrencies, but also by a rather significant inflow of funds in the newly born cryptocurrency market.…”