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Bitcoin dilemma: Is popularity destroying value?

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  • Kim, S. Thomas

Abstract

I measure the amount of congestion in the Bitcoin network by the time to execute a trade and find that congestion is harming Bitcoin's ability to function as a method of trade. The average time to execute a Bitcoin transaction increased from 30 min in 2016 to 413 min in 2018. I find that the congestion is associated with higher transaction fees and reduced volume. The congestion is also creating a distortion in Bitcoin price. The relationship between congestion and price is strongest during the business hours of East Asia.

Suggested Citation

  • Kim, S. Thomas, 2020. "Bitcoin dilemma: Is popularity destroying value?," Finance Research Letters, Elsevier, vol. 33(C).
    • Handle: RePEc:eee:finlet:v:33:y:2020:i:c:s154461231930176x
    DOI: 10.1016/j.frl.2019.07.001
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    References listed on IDEAS

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    1. Philippas, Dionisis & Rjiba, Hatem & Guesmi, Khaled & Goutte, Stéphane, 2019. "Media attention and Bitcoin prices," Finance Research Letters, Elsevier, vol. 30(C), pages 37-43.
    2. Gandal, Neil & Hamrick, JT & Moore, Tyler & Oberman, Tali, 2018. "Price manipulation in the Bitcoin ecosystem," Journal of Monetary Economics, Elsevier, vol. 95(C), pages 86-96.
    3. Brandvold, Morten & Molnár, Peter & Vagstad, Kristian & Andreas Valstad, Ole Christian, 2015. "Price discovery on Bitcoin exchanges," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 36(C), pages 18-35.
    4. Dastgir, Shabbir & Demir, Ender & Downing, Gareth & Gozgor, Giray & Lau, Chi Keung Marco, 2019. "The causal relationship between Bitcoin attention and Bitcoin returns: Evidence from the Copula-based Granger causality test," Finance Research Letters, Elsevier, vol. 28(C), pages 160-164.
    5. Kim, Thomas, 2017. "On the transaction cost of Bitcoin," Finance Research Letters, Elsevier, vol. 23(C), pages 300-305.
    6. Cheah, Eng-Tuck & Fry, John, 2015. "Speculative bubbles in Bitcoin markets? An empirical investigation into the fundamental value of Bitcoin," Economics Letters, Elsevier, vol. 130(C), pages 32-36.
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    Cited by:

    1. Kim, S. Thomas, 2022. "Is it worth to hold bitcoin?," Finance Research Letters, Elsevier, vol. 44(C).

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    More about this item

    Keywords

    Bitcoin; Confirmation time; Congestion; Scalability;
    All these keywords.

    JEL classification:

    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy

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