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A study on the bursting point of Bitcoin based on the BSADF and LPPLS methods

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  • Yao, Can-Zhong
  • Li, Hong-Yu

Abstract

We aim to reveal the characteristics and mechanism of the Bitcoin bubble in 2019. First, we identify the period during which two important Bitcoin bubbles occurred based on the generalized supremum augmented Dickey-Fuller (GSADF) method. There are two significant bubble cycles. The first bubble lasted approximately 26 days from November 25, 2017, to December 21, 2017, while the second bubble lasted approximately one week from June 22 to June 29, 2019. The occurrence of the first bubble was related to the considerable expansion of initial coin offerings (ICOs) in 2017, while the formation of the second bubble was affected by the release of Libra. Second, as the GSADF method cannot be used to accurately infer the time at which a bubble bursts, we employ the log-periodic power law singularity (LPPLS) model for this purpose. We verify that the LPPLS method can not only infer the timing of a bubble burst but also shows stable results. Finally, we demonstrate the implications of the 2019 bubble. During the 2019 bubble, due to the increased supervision of European and American governments and the impact of hedging assets, the bubble’s duration was shorter, and the positive feedback mechanism was not as strong as that of the 2017 bubble. In addition, the oscillating frequency of the bubble in 2019 was low and unstable, which means that it would be more beneficial for investors to hold the currency for a long time.

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  • Yao, Can-Zhong & Li, Hong-Yu, 2021. "A study on the bursting point of Bitcoin based on the BSADF and LPPLS methods," The North American Journal of Economics and Finance, Elsevier, vol. 55(C).
    • Handle: RePEc:eee:ecofin:v:55:y:2021:i:c:s106294082030173x
    DOI: 10.1016/j.najef.2020.101280
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