 Bursting the bitcoin bubble: Do market prices reflect fundamental bitcoin value?Andrea Podhorsky International Review of Financial Analysis, 2024, vol. 93, issue C Abstract: This paper develops a theoretical model of the bitcoin market and demonstrates that the bitcoin’s volatile and explosive price path is a consequence of the Bitcoin protocol’s system of supply management. The model implies that the marginal cost of mining the target supply of bitcoins is the fundamental value of the bitcoin since it corresponds to an equilibrium in the Bitcoin protocol and the rent-seeking tournament among miners. The data provide strong empirical evidence of cointegration between the bitcoin’s price and the marginal cost of mining the target supply of bitcoins, demonstrating the existence of their long-run equilibrium relationship. Current bubble detection techniques indicate that there is no evidence of explosive departures in the price of the bitcoin from its model-implied fundamental value. Since the raw price data exhibit explosive behavior, the apparent bubbles in the price of the bitcoin can be attributed to its nonstationary market fundamentals. Keywords: Bitcoin; Cryptocurrencies; Fintech; GSADF test; Multiple bubbles; Valuation (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:finana:v:93:y:2024:i:c:s1057521924000905 DOI: 10.1016/j.irfa.2024.103158 Access Statistics for this article International Review of Financial Analysis is currently edited by B.M. Lucey More articles in International Review of Financial Analysis from Elsevier |
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