An Investigation of the Complexity of Bitcoin Pricing

Abstract

This chapter aims to investigate whether it is possible to combine existing research regarding specific attributes of Bitcoin and other cryptocurrencies into one model of Bitcoin price explanation. To do so, an extensive literature review is conducted to explore the publications available. The literature review results in a list of variables used to explore various research areas regarding Bitcoin. The most popular variables (such as the amount of web searches regarding Bitcoin, the gold price or security of blockchain technologies) are selected and combined into a regression model. Even though the coefficient estimates for the Google Trends index, the mean transaction fee, the number of Bitcoin wallets, the security breach dummy variable and the lagged Bitcoin price are reported as significant, statistical testing indicates severe issues with the model. The chapter therefore concludes with the finding that research regarding Bitcoin is not advanced enough and that its pricing mechanisms are too complex to build a sum-of-the-parts model. For future research the exploration of an advanced model with measures implemented to counteract mentioned issues is suggested.