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.
Allan, Connor, "How does Bitcoin React to Material Events? A Theoretical and Empirical Analysis of Speculative Behavior in the Bitcoin Market" (2019). Senior Independent Study Theses. Paper 8332.
Business | Finance and Financial Management
Bitcoin, Speculative Behavior, Event Study
Bachelor of Arts
Senior Independent Study Thesis
© Copyright 2019 Connor Allan