The Bitcoin Boom: An In Depth Analysis Of The Price Of Bitcoins

Title: The Bitcoin Boom: An In Depth Analysis Of The Price Of Bitcoins
Authors: Vockathaler, Brian
Date: 2015-08-31
Abstract: The extreme volatility of Bitcoin prices has garnered some serious attention from the media and the academic community. Academics have flocked to the crypto currency and conducted empirical analyses. Unfortunately, the results of these empirical works have been inconsistent, which makes it difficult to draw definitive conclusions regarding the factors that affect the price fluctuations of Bitcoins. This research project has two main purposes. Firstly, this paper re-examines the works done by the previous researchers and assesses if their findings remain valid ex-post. Secondly, this paper investigates the long term factors that are affecting the price of Bitcoins. Our findings show that several previous results are drastically different when they are re-tested after these results have been published . In addition, our findings show that the majority of the volatility of Bitcoins came from unexpected shocks. We were able to capture the effect of these unexpected shocks by using a Generalized AutoRegressive Conditional Heteroskedasticity (GARCH) model. The GARCH model transforms the standard OLS residuals into an endogenous process that allows its variance to vary across periods. We conclude that these unexpected shocks are by far the largest contributor to the price fluctuations of Bitcoins.
CollectionScience économique - Mémoires // Economics - Research Papers