Title : An inquiry of Bitcoin price formation: Evidence from Linear and Nonlinear ARDL Frameworks, 2017-2018
Author(s) : Clément Landormy
Abstract : This study comprehensively analyses Bitcoin’s price dynamics amidst the volatility of 2017-2018, considering various influencing factors. Drawing from Fisher’s Equation of Exchange (1911), Keynes’ liquidity preference theory (1936), and prior research insights, we formulate an Equation of Bitcoin Exchange, setting the stage for empirical testing. Employing autoregressive distributed lag models in both linear (ARDL) and nonlinear (NARDL) frameworks, we scrutinise daily data from 2017 to 2018. Our findings underscore the predominant impact of internal factors, driven by market dynamics and technological advancements, on Bitcoin prices, with investment attractiveness following closely behind. Surprisingly, macroeconomic and financial variables demonstrate relatively less influence. While Bitcoin may not serve as a direct store of value like gold or offer complete hedging against US dollar fluctuations, its potential as a diversification tool in stock markets becomes apparent, barring short-term disruptions associated with Bitcoin price crashes. Moreover, factors related to investment attractiveness frequently exert downward pressure on Bitcoin prices, emphasising the speculative nature inherent in cryptocurrencies. Noteworthy is the positive short-term connection between Bitcoin prices and tether transactions, coupled with the positive long-term interaction between Bitcoin prices and crypto fundraising efforts at the peak of the ICO boom, signalling a pre-crash surge in 2017. Conversely, the long-term negative relationship between Bitcoin prices and Tether transactions suggests that Tether acts as a hedge against Bitcoin price crashes.
Key-words : Bitcoin, NARDL, Market forces, Safe haven, Tether.
JEL Classification : C32, E42, E44, G11, G12, G15.
