Crypto Coins and Credit Risk: Modelling and Forecasting their Probability of Death

Dean Fantazzini

MPRA Paper from University Library of Munich, Germany

Abstract: This paper examined a set of over two thousand crypto-coins observed between 2015 and 2020 to estimate their credit risk by computing their probability of death. We employed different definitions of dead coins, ranging from academic literature to professional practice, alternative forecasting models, ranging from credit scoring models to machine learning and time series-based models, and different forecasting horizons. We found that the choice of the coin death definition affected the set of the best forecasting models to compute the probability of death. However, this choice was not critical, and the best models turned out to be the same in most cases. In general, we found that the \textit{cauchit} and the zero-price-probability (ZPP) based on the random walk or the Markov Switching-GARCH(1,1) were the best models for newly established coins, whereas credit scoring models and machine learning methods using lagged trading volumes and online searches were better choices for older coins. These results also held after a set of robustness checks that considered different time samples and the coins' market capitalization.

Keywords: Bitcoin; Crypto-assets; Crypto-currencies; Credit risk; Default Probability; Probability of Death; ZPP; Cauchit; Logit; Probit; Random Forests; Google Trends. (search for similar items in EconPapers)
JEL-codes: C32 C35 C51 C53 C58 G12 G17 G32 G33 (search for similar items in EconPapers)
Date: 2022
New Economics Papers: this item is included in nep-big, nep-cmp, nep-for, nep-pay and nep-rmg
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

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Related works:
Journal Article: Crypto-Coins and Credit Risk: Modelling and Forecasting Their Probability of Death (2022)
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