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Booms, busts and heavy-tails: The story of Bitcoin and cryptocurrency markets?

John Fry

Economics Letters, 2018, vol. 171, issue C, 225-229

Abstract: We develop bespoke rational bubble models for Bitcoin and cryptocurrencies that incorporate both heavy tails and the probability of a complete collapse in asset prices. Empirically, we present robustified evidence of bubbles in Bitcoin and Ethereum. Theoretically, we show that liquidity risks may generate heavy-tails in Bitcoin and cryptocurrency markets. Even in the absence of bubbles dramatic booms and busts can occur. We thus sound a timely note of caution.

Keywords: Bitcoin; Bubbles; Cryptocurrencies; Econophysics; Liquidity risk (search for similar items in EconPapers)
JEL-codes: C1 E4 G1 (search for similar items in EconPapers)
Date: 2018
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Handle: RePEc:eee:ecolet:v:171:y:2018:i:c:p:225-229