Bitcoin’s fundamental value and speculative behavior: A new framework for price dynamics

Qiong Wu, Ge Guo, Xiaogang Li, Rajesh Singh and Ting Zhang

The North American Journal of Economics and Finance, 2025, vol. 80, issue C

Abstract: This paper develops a novel theoretical framework to analyze Bitcoin’s price formation, highlighting how both intrinsic network-based valuation and speculative trading jointly influence market dynamics. We distinguish between fundamentalist investors, who anchor price expectations to Bitcoin’s intrinsic worth derived from network effects, user adoption and hash rate, and speculators, who rely on historical price movements to guide trading. Empirical analysis on historical Bitcoin price data validates the proposed theoretical framework, capturing key stylized facts such as volatility persistence, fat-tailed returns, and long-memory properties. Benchmark comparisons demonstrate that the model substantially improves upon existing valuation approaches based solely on network effects, explaining majority of the historical price variance. These findings emphasize the dual nature of Bitcoin as both a fundamentally valued asset and a vehicle for speculation, offering practical insights for investors and regulators seeking to navigate the evolving cryptocurrency landscape.

Keywords: Bitcoin system; Intrinsic value; Market bubble; Fundamentalist; Speculator; Auto-regressive conditional heteroskedasticity (search for similar items in EconPapers)
JEL-codes: C58 C63 G12 G41 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecofin:v:80:y:2025:i:c:s1062940825001494

DOI: 10.1016/j.najef.2025.102509

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