Metcalfe's law and herding behaviour in the cryptocurrencies market

Daniel Traian Pele () and Miruna Mazurencu-Marinescu-Pele

No 2019-16, Economics Discussion Papers from Kiel Institute for the World Economy (IfW Kiel)

Abstract: In this paper, the authors investigate the statistical properties of some cryptocurrencies by using three layers of analysis: alpha-stable distributions, Metcalfe's law and the bubble behaviour through the LPPL modelling. The results show, in the medium to long-run, the validity of Metcalfe's law (the value of a network is proportional to the square of the number of connected users of the system) for the evaluation of cryptocurrencies; however, in the short-run, the validity of Metcalfe's law for Bitcoin is questionable. As the results showed a potential for herding behaviour, the authors then used LPPL models to capture the behaviour of cryptocurrencies exchange rates during an endogenous bubble and to predict the most probable time of the regime switching. The main conclusion is that Metcalfe's law may be valid in the long-run, however in the short-run, on various data regimes, its validity is highly debatable.

Keywords: Cryptocurrency; Bitcoin; CRIX; Log-Periodic Power Law; Metcalfe's Law; Stable Distribution; Herding (search for similar items in EconPapers)
JEL-codes: C22 C32 C51 C53 C58 E41 E42 E47 E51 G1 G17 (search for similar items in EconPapers)
Date: 2019
New Economics Papers: this item is included in nep-hme, nep-mac, nep-ore and nep-pay
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http://www.economics-ejournal.org/economics/discussionpapers/2019-16
https://www.econstor.eu/bitstream/10419/193179/1/1066775478.pdf (application/pdf)

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Persistent link: https://EconPapers.repec.org/RePEc:zbw:ifwedp:201916

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