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Mining Shocks, Blockchain Security, and the Value of Bitcoin

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  • Karau, Sören
  • Moench, Emanuel

Abstract

We study the implications of Bitcoin's security model for its market valuation. We identify mining shocks by exploiting exogenous variation in mining intensity using a narrative approach in a structural Vector Autoregression. While their impact on transaction speed is short-lived, mining shocks persistently affect trading volumes and market valuations, explaining up to 15 percent of Bitcoin's substantial price variation. Our findings can be rationalized in a theoretical framework where mining shocks affect the likelihood to withstand potential attacks and as such impact investor beliefs about the future state of the network and thus Bitcoin’s usefulness as a means of payment.

Suggested Citation

  • Karau, Sören & Moench, Emanuel, 2025. "Mining Shocks, Blockchain Security, and the Value of Bitcoin," CEPR Discussion Papers 20141, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:20141
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    File URL: https://cepr.org/publications/DP20141
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    JEL classification:

    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Systems; Standards; Regimes; Government and the Monetary System
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance

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