Abstract

Decentralized digital currencies such as Bitcoin have emerged as captivating innovations in the Financial Markets. Vast adoption of Bitcoin in the past ten years has amplified market prices leading to significant profit opportunities. Since achieving record high prices of approximately $20,000 USD in 2017, Bitcoin prices have drastically plummeted. Extreme prices fluctuations have increased concern over Bitcoin’s stability as a payment mechanism and riskiness as an investment. In this paper, I attempt to shed light on the extraordinary price volatility of Bitcoin. This paper analyzes the factors that affect Bitcoin prices, in terms of supply-demand fundamentals, attractiveness to investors, macroeconomic-financial indicators, and material events. I employ various economic theories to model the relationship between Bitcoin prices and its determinants which include the Quantity Theory of Money and Barro’s Gold Standard Model. In addition to the theoretical framework, I empirically test the proposed models through autoregressive times series and event study methodologies. This study contributes to the knowledge of Bitcoin by identifying speculative trading in the incidence of material events. The results indicate that attention-driven behavior to material events by investors alters their expectations of Bitcoin; hence, influencing short-term price responses.

Advisor

Wang, Gang

Department

Business Economics

Disciplines

Business | Finance and Financial Management

Keywords

Bitcoin, Speculative Behavior, Event Study

Publication Date

2019

Degree Granted

Bachelor of Arts

Document Type

Senior Independent Study Thesis

Download

Share

COinS
 

© Copyright 2019 Connor Allan