IDEAS home Printed from https://ideas.repec.org/a/inm/ormnsc/v71y2025i3p1865-1888.html
   My bibliography  Save this article

Does Mining Fuel Bubbles? An Experimental Study on Cryptocurrency Markets

Author

Listed:
  • Marco Lambrecht

    (Hanken School of Economics & Helsinki GSE, 00100 Helsinki, Finland)

  • Andis Sofianos

    (Durham University, Durham DH1 3LE, United Kingdom)

  • Yilong Xu

    (Utrecht University School of Economics, Utrecht University, 3584 EC Utrecht, Netherlands)

Abstract

We investigate how key features associated with the Proof-of-Work consensus mechanism of Bitcoin (commonly referred to as mining) affect pricing. In a controlled laboratory experiment, we observe that price bubble formation can be attributed to mining. Moreover, overpricing is more pronounced if the mining capacity is centralized to a small group of individuals. The order book data reveal that miners seem to play a crucial role in bubble formation. Further probing the mechanism in a second study, we find that both mining costs and decisions jointly with the sluggish rate of supply of the asset contribute to the bubble formation. Our results demonstrate that erratic pricing is an inherent feature of cryptocurrencies based on a mining protocol, thus seriously limiting any prospects for such assets becoming a medium of exchange.

Suggested Citation

  • Marco Lambrecht & Andis Sofianos & Yilong Xu, 2025. "Does Mining Fuel Bubbles? An Experimental Study on Cryptocurrency Markets," Management Science, INFORMS, vol. 71(3), pages 1865-1888, March.
    • Handle: RePEc:inm:ormnsc:v:71:y:2025:i:3:p:1865-1888
    DOI: 10.1287/mnsc.2022.01238
    as

    Download full text from publisher

    File URL: http://dx.doi.org/10.1287/mnsc.2022.01238
    Download Restriction: no
    File URL: https://libkey.io/10.1287/mnsc.2022.01238?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:inm:ormnsc:v:71:y:2025:i:3:p:1865-1888. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Chris Asher (email available below). General contact details of provider: https://edirc.repec.org/data/inforea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.