Brave New World? Bitcoin is not the New Gold: Understanding Cryptocurrency Price Dynamics

Sangyup Choi and Junhyeok Shin
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Junhyeok Shin: Yonsei Univ

No 2020rwp-167, Working papers from Yonsei University, Yonsei Economics Research Institute

Abstract: While the many commonalities shared by Bitcoin and gold raise a question of whether Bitcoin is a safe-haven like gold, relevant empirical evidence to date is mixed. Unlike existing empirical studies, we derive a simple estimable model of Bitcoin price dynamics from the quantity equation, which allows for structural interpretation of our findings; we then estimate the dynamic effects of macro factors, including income, inflation, and interest rates on Bitcoin prices at a weekly frequency. Unlike gold, Bitcoin prices are vulnerable to financial risk or uncertainty shocks, which is inconsistent with safe-haven quality. When the empirical model is augmented with Bitcoin-specific variables, such as its supply, transactions, and velocity, a major share of Bitcoin price dynamics is explained by these variables. We also find an interesting nonlinearity in the drivers of Bitcoin price dynamics between bullish and bearish market: the role of Bitcoin-idiosyncratic shocks increases when it appreciates, while the effects of macro factors dominate when it depreciates.

Keywords: Cryptocurrencies; Bitcoin; safe-haven; gold; quantity equation; Vector Autoregressions (search for similar items in EconPapers)
JEL-codes: E41 E44 F31 G10 (search for similar items in EconPapers)
Pages: 43pages
Date: 2020-02
New Economics Papers: this item is included in nep-mac, nep-mon and nep-pay
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Citations: View citations in EconPapers (2)

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