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Optimal Fees and Equilibrium in Crypto Markets

Author

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  • Elisa Luciano

Abstract

The paper studies optimal fees and the conditions for existence of an equilibrium without forks in a market for cryptocurrencies, of the Bitcoin type. Once calibrated to the BTC.com high -frequency data, the model explains the realized volatility of the observed fees, the volatility amplification from the prices without to the ones with fees, as well as the relative stability of the implied optimal policies. The rate of return that investors would require from an asset with the same drift and diffusion of the BTC, but without costs, is a modest 3.5%, while the expected return from the crypto is 14.7%

Suggested Citation

  • Elisa Luciano, 2024. "Optimal Fees and Equilibrium in Crypto Markets," Carlo Alberto Notebooks 722 JEL Classification: D, Collegio Carlo Alberto.
    • Handle: RePEc:cca:wpaper:722
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    File URL: https://www.carloalberto.org/wp-content/uploads/2024/10/no.722.pdf
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    References listed on IDEAS

    as
    1. 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.
    2. Dumas, Bernard & Luciano, Elisa, 1991. "An Exact Solution to a Dynamic Portfolio Choice Problem under Transactions Costs," Journal of Finance, American Finance Association, vol. 46(2), pages 577-595, June.
    3. Easley, David & O'Hara, Maureen & Basu, Soumya, 2019. "From mining to markets: The evolution of bitcoin transaction fees," Journal of Financial Economics, Elsevier, vol. 134(1), pages 91-109.
    4. Gur Huberman & Jacob D Leshno & Ciamac Moallemi, 2021. "Monopoly without a Monopolist: An Economic Analysis of the Bitcoin Payment System [Blockchain Economics]," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 88(6), pages 3011-3040.
    5. George M. Constantinides, 1979. "Multiperiod Consumption and Investment Behavior with Convex Transactions Costs," Management Science, INFORMS, vol. 25(11), pages 1127-1137, November.
    Full references (including those not matched with items on IDEAS)

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