Bitcoin: Speculative asset or innovative technology?

Adrian Lee (), Mengling Li and Huanhuan Zheng

Journal of International Financial Markets, Institutions and Money, 2020, vol. 67, issue C

Abstract: We unite investment by speculators and tech-savvy investors with a heterogeneous agent model. While speculators seek to profit from extrapolating the price trends, tech-savvy investors trade based on the prospective value of Bitcoin, which is a function of factors that capture the market demand and technical supply of Bitcoin. Estimating the structural model, we find the coexistence of speculators and tech-savvy investors in the Bitcoin market. We further show that, regardless of the market states, tech-savvy investors consistently buy (sell) Bitcoin when its price goes below (above) the prospective value. However, speculators follow a momentum trading strategy in the high-market-volatility regime and switch to a contrarian strategy in the low-market-volatility regime. Our finding suggests that a significant fraction of tech-savvy investors value the potential of Bitcoin as an innovative technology. Incorporating heterogeneous investors yields better in-sample estimation efficiency and out-of-sample forecasting precision than models that consider only speculators or tech-savvy investors.

Keywords: Fintech; Cryptocurrency; Tech-savvy investor; Heterogeneity; Speculation (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (20)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:intfin:v:67:y:2020:i:c:s1042443120300937

DOI: 10.1016/j.intfin.2020.101209

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