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Bitcoin: Bubble that bursts or Gold that glitters?

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  • Caferra, Rocco
  • Tedeschi, Gabriele
  • Morone, Andrea

Abstract

This paper aims to shed light on the 2017 Bitcoin bubble. Firstly, by applying the dynamic time warping algorithm, we identify among several financial instruments a subsample of five assets with similar characteristics to the cryptocurrency bubble. Interestingly, among the fluctuations characterizing these assets, the algorithm shows a close affinity between the Bitcoin bubble and the 2000 NASDAQ Dotcom one. Once the subsample is identified, we study the (de)synchronization among these assets via the wavelet coherence approach. Although Bitcoin is poorly correlated with the other indices, given its scarce connection with the real economy, we observe switching phenomena among these instruments. A more careful study on these portfolio reallocations, conducted via an event study analysis, reveals that traders seem to redirect capital from stock markets and gold to Bitcoin in case of positive events of the cryptocurrency.

Suggested Citation

  • Caferra, Rocco & Tedeschi, Gabriele & Morone, Andrea, 2021. "Bitcoin: Bubble that bursts or Gold that glitters?," Economics Letters, Elsevier, vol. 205(C).
    • Handle: RePEc:eee:ecolet:v:205:y:2021:i:c:s0165176521002196
    DOI: 10.1016/j.econlet.2021.109942
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    References listed on IDEAS

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    Cited by:

    1. Cascavilla, Alessandro, 2023. "Between money and speculative asset: the role of financial literacy on the perception towards Bitcoin in Italy," MPRA Paper 118472, University Library of Munich, Germany.
    2. Kyriazis, Nikolaos & Papadamou, Stephanos & Tzeremes, Panayiotis & Corbet, Shaen, 2023. "Can cryptocurrencies provide a viable hedging mechanism for benchmark index investors?," Research in International Business and Finance, Elsevier, vol. 64(C).
    3. Almeida, José & Gonçalves, Tiago Cruz, 2023. "A systematic literature review of investor behavior in the cryptocurrency markets," Journal of Behavioral and Experimental Finance, Elsevier, vol. 37(C).

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    More about this item

    Keywords

    Cryptocurrencies; Bubbles; Assets synchronization; Hedging;
    All these keywords.

    JEL classification:

    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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