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      How Blockchain Network Factors and Market Forces Determine Bitcoin Returns

      Preprint
      In review
      research-article
        1 ,
      ScienceOpen Preprints
      ScienceOpen
      Bitcoin, Bitcoin Price, Bitcoin Network Factor, Bitcoin Market Forces, VAR/VECM
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            Revision notes

            1. The last sentence of the Abstract now captures a recommendation.

            2. Paragraph 7 of the Introduction (Section 1) now explicitly capture the contribution.

            3. Paragraph 2 of the Conclusions (Section 5) now reflect the suggestion for future research.

            4. References now follow uniform format.

            5. Professional English proofreading was carried out.

            Abstract

            The creation of distributed ledger technology resulted in the use of secured peer-to-peer interactions that pave way for the invention of Bitcoin and other cryptocurrencies. Since its invention, the price of Bitcoin has exhibited excessive volatility and has attracted increasing attentions. This paper considers the isolated influence of network activities (confirmed payments and users’ adoptions), mining information (network difficulty, Hashrate and transaction fees) and market factors (such as, bitcoin supply and trade volume) as key drivers of Bitcoin price. Using the vector autoregressive model (VECM), the results identified the existence of both long-term equilibrium and short-term dynamic relationship amongst the endogenous system’s variables. The cointegration relation has reversed adjustment effects on the bitcoin return. Accordingly, any deviation from the equilibrium dynamics due to perturbations of network events, market forces and mining data would be minimised. This explains why the Bitcoin price, and by implication its return, continues to experience different massive run-up, spiky protrusions, resistance, reversals, strong supports and consolidations. Based on the finding, the study recommends increased regulatory efforts to curb the excessive fluctuations in Bitcoin price in order to prevent significant loss which could discourage digital investors in the cryptocurrency markets.

            Content

            Author and article information

            Journal
            ScienceOpen Preprints
            ScienceOpen
            20 January 2023
            Affiliations
            [1 ] Department of Accounting Science, Walter Sisulu University, Mthatha, Eastern Cape, South Africa;
            Author notes
            Author information
            https://orcid.org/0000-0002-1929-3291
            Article
            10.14293/S2199-1006.1.SOR-.PPASACK.v3
            baea8720-0684-4767-85d3-18f64077ff74

            This work has been published open access under Creative Commons Attribution License CC BY 4.0 , which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited. Conditions, terms of use and publishing policy can be found at www.scienceopen.com .

            History
            : 3 November 2022
            Categories

            The datasets generated during and/or analysed during the current study are available from the corresponding author on reasonable request.
            Statistics,Economics
            Bitcoin, Bitcoin Price, Bitcoin Network Factor, Bitcoin Market Forces, VAR/VECM

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