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The bitcoin: a sparkling bubble or price discovery?

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  • Imad A. Moosa

    (RMIT)

Abstract

The phenomenal rise in the price of bitcoin, prior to the trend reversal of early 2018, resembles a bubble as spectacular as any other bubble. A mere observation of the price rise and a comparison with the common characteristics of a bubble provide anecdotal evidence for the bitcoin bubble. Based on price and volume data up to the end of November 2017, formal empirical evidence is presented by using procedures that do not require the estimation of a fundamental value for bitcoin. The empirical evidence shows that (i) the volume of trading can be explained predominantly in terms of price dynamics; (ii) trading in bitcoin is based exclusively on technical considerations pertaining to past price movements, particularly positive price changes; and (iii) the price of bitcoin is an explosive process. These findings are interpreted to imply a price bubble.

Suggested Citation

  • Imad A. Moosa, 2020. "The bitcoin: a sparkling bubble or price discovery?," Economia e Politica Industriale: Journal of Industrial and Business Economics, Springer;Associazione Amici di Economia e Politica Industriale, vol. 47(1), pages 93-113, March.
    • Handle: RePEc:spr:epolin:v:47:y:2020:i:1:d:10.1007_s40812-019-00135-9
    DOI: 10.1007/s40812-019-00135-9
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    Cited by:

    1. Andrew Phiri, 2022. "Can wavelets produce a clearer picture of weak-form market efficiency in Bitcoin?," Eurasian Economic Review, Springer;Eurasia Business and Economics Society, vol. 12(3), pages 373-386, September.
    2. Bao Doan & Huy Pham & Binh Nguyen Thanh, 2022. "Price discovery in the cryptocurrency market: evidence from institutional activity," Economia e Politica Industriale: Journal of Industrial and Business Economics, Springer;Associazione Amici di Economia e Politica Industriale, vol. 49(1), pages 111-131, March.
    3. Ludovic Tangpi & Shichun Wang, 2022. "Optimal Bubble Riding: A Mean Field Game with Varying Entry Times," Papers 2209.04001, arXiv.org, revised Jan 2024.
    4. Giancarlo Giudici & Alistair Milne & Dmitri Vinogradov, 2020. "Cryptocurrencies: market analysis and perspectives," Economia e Politica Industriale: Journal of Industrial and Business Economics, Springer;Associazione Amici di Economia e Politica Industriale, vol. 47(1), pages 1-18, March.

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    More about this item

    Keywords

    Bitcoin; Cryptocurrencies; Bubbles price discovery; Fundamental value;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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