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Booms, busts and heavy-tails: The story of Bitcoin and cryptocurrency markets?

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  • 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.

Suggested Citation

  • Fry, John, 2018. "Booms, busts and heavy-tails: The story of Bitcoin and cryptocurrency markets?," Economics Letters, Elsevier, vol. 171(C), pages 225-229.
    • Handle: RePEc:eee:ecolet:v:171:y:2018:i:c:p:225-229
    DOI: 10.1016/j.econlet.2018.08.008
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Bitcoin; Bubbles; Cryptocurrencies; Econophysics; Liquidity risk;
    All these keywords.

    JEL classification:

    • C1 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General
    • E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates
    • G1 - Financial Economics - - General Financial Markets

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