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Equilibrium Bitcoin Pricing

Author

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  • BRUNO BIAIS
  • CHRISTOPHE BISIÈRE
  • MATTHIEU BOUVARD
  • CATHERINE CASAMATTA
  • ALBERT J. MENKVELD

Abstract

We offer a general equilibrium analysis of cryptocurrency pricing. The fundamental value of the cryptocurrency is its stream of net transactional benefits, which depend on its future prices. This implies that, in addition to fundamentals, equilibrium prices reflect sunspots. This in turn implies multiple equilibria and extrinsic volatility, that is, cryptocurrency prices fluctuate even when fundamentals are constant. To match our model to the data, we construct indices measuring the net transactional benefits of Bitcoin. In our calibration, part of the variations in Bitcoin returns reflects changes in net transactional benefits, but a larger share reflects extrinsic volatility.

Suggested Citation

  • Bruno Biais & Christophe Bisière & Matthieu Bouvard & Catherine Casamatta & Albert J. Menkveld, 2023. "Equilibrium Bitcoin Pricing," Journal of Finance, American Finance Association, vol. 78(2), pages 967-1014, April.
    • Handle: RePEc:bla:jfinan:v:78:y:2023:i:2:p:967-1014
    DOI: 10.1111/jofi.13206
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