The Role of Beliefs in Entering and Exiting the Bitcoin Market

Daniela Balutel, Christopher Henry, Jorge Vásquez and Marcel Voia
Authors registered in the RePEc Author Service: Jorge Martinez-Vazquez ()

Staff Working Papers from Bank of Canada

Abstract: Cryptoassets, such as Bitcoin, represent a new type of financial technology that has grown substantially in recent years in terms of market size. Previous research has documented the characteristics and motivations of early Bitcoin adopters, but less work has been done studying those who choose to exit the Bitcoin market. We develop a theoretical model of both entry and exit to the Bitcoin market, the dynamics of which are driven by agents’ beliefs about Bitcoin’s survival. We connect the model to micro-level data from Canada, allowing us to empirically test the role of beliefs in transitioning to past ownership. Using a control function approach with appropriate exclusion restrictions, we estimate the effects of beliefs while controlling both for selection into or out of Bitcoin ownership and for possible simultaneity. We find evidence that beliefs are significant predictors of exit, while the size and direction of these effects differ across time and ownership status.

Keywords: Bank notes; Central bank research; Coronavirus disease (COVID-19); Financial services; International topics (search for similar items in EconPapers)
JEL-codes: E41 E42 E58 F22 (search for similar items in EconPapers)
Pages: 62 pages
Date: 2024-06
New Economics Papers: this item is included in nep-ban, nep-fdg, nep-mon and nep-pay
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Working Paper: The Role of Beliefs Entering and Exiting the Bitcoin Market (2024)
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Persistent link: https://EconPapers.repec.org/RePEc:bca:bocawp:24-22

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