Abstract
The last decade stands as a witness to a large number digital currencies coming into existence, such as—LiteCoin, BitCoin, Ripple, AuroraCoin, DogeCoin, etc. BitCoin being the most prominent among them, both in terms of its impressive price development and the price volatility it has. In this paper, the author uses a speculative bubble tracker, based on Wiener stochastic process, at times of two major financial crises, i.e. during the 2008–2009 US Subprime Mortgage Market Crisis and the Global Recession that started from 2010 onwards. The data used has been for the daily closing prices (converted into monthly after taking a geometric mean) from July 2008 to July 2010. Then from July 2010—July 2012, 2012–2014 and finally, 2014–2016. Using such data, the author traces out the price movements and points out periods of mass hysteria i.e. a ‘speculative bubble’ over the period concerned by comparing the results derived using a Brownian motion equation form used in physics and hence, tries to correlate the price fluctuations of BitCoins with fluctuations in the crisis index (as constructed by the author) for USA. Intriguingly, significance of speculative bubbles is prevalent at times of these financial crises.
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Read the full story at https://www.thebalance.com/is-BitCoin-the-answer-in-a-financial-crisis-391275
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As Dimitrova (2005) puts it, “A decline in the stock prices induces foreign investors to sell the financial assets they hold. This leads to a depreciation of the underlying currency, but may stimulate BitCoin price, if investors substitute investment in stocks for investment in BitCoin. Generally, investors’ return on stock exchange may capture opportunity costs of investing in BitCoin. Hence, in this case the stock exchange indices are expected to be positively related to BitCoin price.”
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For conversion with the crisis index, the bubble component has been converted into monthly data after taking a geometric mean of the daily prices. However for calculation of the significance of the bubble component, daily prices have been taken.
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The very recent swings in BitCoin prices have not been taken into consideration and the author here does not comment on such recent features. That has been left for further research. This paper is designed to look through the crisis periods with an eye on BitCoin prices and hence the motivation.
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Mukherjee, S. (2019). Existence of Speculative Bubbles for the US at Times of Two Major Financial Crises in the Recent Past: An Econometric Check of BitCoin Prices. In: Hacioglu, U. (eds) Blockchain Economics and Financial Market Innovation. Contributions to Economics. Springer, Cham. https://doi.org/10.1007/978-3-030-25275-5_23
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