Booms, busts and heavy tails: the story of Bitcoin and cryptocurrency markets

Fry, John

Abstract

We develop bespoke rational bubble models for Bitcoin and cryptocurrencies that incorporate both heavy tails and the probability of a complete collapse in asset prices. Empirically, we present robustified evidence of bubbles in Bitcoin and Ethereum. Theoretically, we show that liquidity risks may generate heavy-tails in Bitcoin and cryptocurrency markets. Even in the absence of bubbles dramatic booms and busts can occur. We thus sound a timely note of caution.

Citation

Fry, J. (2018). Booms, busts and heavy tails: the story of Bitcoin and cryptocurrency markets. Economics letters, 171, 225-229. https://doi.org/10.1016/j.econlet.2018.08.008

• Journal Article Type: Article
• Acceptance Date: Aug 5, 2018
• Online Publication Date: Aug 9, 2018
• Publication Date: 2018-10
• Deposit Date: Feb 4, 2022
• Journal: Economics letters
• Print ISSN: 0165-1765
• Publisher: Elsevier
• Peer Reviewed: Peer Reviewed
• Volume: 171
• Pages: 225-229
• DOI: https://doi.org/10.1016/j.econlet.2018.08.008
• Keywords: Bitcoin; Bubbles; Cryptocurrencies; Econophysics; Liquidity risk
• Public URL: https://hull-repository.worktribe.com/output/3921041
• Related Public URLs: https://e-space.mmu.ac.uk/621354/