FINANCIAL VIABILITY OF CRYPTOCURRENCIES IN PAKISTAN

Abstract

The globally acknowledged accelerating crypto hype has put a lot of work on researchers and analysts. This new marvel of digital currencies requires a lot of attention, for it to become conventional worldwide. Virtual coins or cryptographic forms of money utilize encryption framework, so called the Block Chain technology, that manage the formation and supply of coins and exchanges must be recognized from a financial examination point of view. Subsequently, it is essential to inspect which social, money related & macroeconomic components decide its cost with a specific end goal to know the degree and outcomes of the economy. This paper aims to study different internal and external factors that affect cryptocurrencies’ prices. A sample of four digital coins with largest market capitalization has been selected. Daily price data from the years 2015 to 2020 of Bitcoin with other altcoins such as Ethereum, Ripple and Litecoin has been taken. Internal factors consist of demand and supply variables and also the attractiveness associated with its increasing hype. Other factors include KSE-100 Index (Karachi Stock Exchange), USD-PKR (Dollar to Pakistani Rupee) exchange rate and oil prices from PSO (Pakistan State Oil). ARDL analysis has been done to study the effect of these factors on the prices of crypto coins. Our analysis shows that circulating supply has a significant effect on Ethereum and Ripple prices in the long run. Attractiveness has been significant on the prices of Ethereum only.The globally acknowledged accelerating crypto hype has put a lot of work on researchers and analysts. This new marvel of digital currencies requires a lot of attention, for it to become conventional worldwide. Virtual coins or cryptographic forms of money utilize encryption framework, so called the Block Chain technology, that manage the formation and supply of coins and exchanges must be recognized from a financial examination point of view. Subsequently, it is essential to inspect which social, money related & macroeconomic components decide its cost with a specific end goal to know the degree and outcomes of the economy. This paper aims to study different internal and external factors that affect cryptocurrencies’ prices. A sample of four digital coins with largest market capitalization has been selected. Daily price data from the years 2015 to 2020 of Bitcoin with other altcoins such as Ethereum, Ripple and Litecoin has been taken. Internal factors consist of demand and supply variables and also the attractiveness associated with its increasing hype. Other factors include KSE-100 Index (Karachi Stock Exchange), USD-PKR (Dollar to Pakistani Rupee) exchange rate and oil prices from PSO (Pakistan State Oil). ARDL analysis has been done to study the effect of these factors on the prices of crypto coins. Our analysis shows that circulating supply has a significant effect on Ethereum and Ripple prices in the long run. Attractiveness has been significant on the prices of Ethereum only.