Publication detail

Kristoufek, L.: Is the Bitcoin price dynamics economically reasonable? Evidence from fundamental laws

Author(s): prof. PhDr. Ladislav Krištoufek Ph.D.,
Type: Articles in journals with impact factor
Year: 2019
Number: 0
Published in: Physica A: Statistical Mechanics and Its Applications 536, art. 120873 PDF
Publishing place:
Keywords: Bitcoin, cryptocurrency, fundamental value
JEL codes:
Suggested Citation:
Grants: PRIMUS/19/HUM/17 2019-2021 Behavioral finance and macroeconomics: New insights for the mainstream
Abstract: Dynamics of the Bitcoin price as the most prominent cryptocurrency is studied in the light of two fundamental economic laws - the Law of One Price and the Equation of Exchange. Utilizing the unprecedented data availability of Bitcoin statistics, we are able to construct a theoretical exchange rate base of the cryptocurrency with respect to the US dollar. Through the concept of statistical equilibrium verified by the cointegration relationship, we show several interesting points. First, the Bitcoin price dynamics is very well captured by the underlying transaction data which leads to a strong fundamental basis of the cryptocurrency. Second, several historical bubbles hit the confidence intervals around the fundamental price but then start their correction back to the equilibrium. Third, the fundamental price implied by the transaction data is not ever-increasing but reflects the ups and downs of Bitcoin utility in transactions. And fourth, our theory-implied fundamental price suggests that the current (December 2018) Bitcoin price is very close to its fundamental price estimated at around $3,500.


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