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The Role of Beliefs in Entering and Exiting the Bitcoin Market

Author

Listed:
  • Daniela Balutel
  • Christopher Henry
  • Jorge Vásquez
  • Marcel Voia

Abstract

Cryptoassets, such as Bitcoin, represent a new type of financial technology that has grown substantially in recent years in terms of market size. Previous research has documented the characteristics and motivations of early Bitcoin adopters, but less work has been done studying those who choose to exit the Bitcoin market. We develop a theoretical model of both entry and exit to the Bitcoin market, the dynamics of which are driven by agents’ beliefs about Bitcoin’s survival. We connect the model to micro-level data from Canada, allowing us to empirically test the role of beliefs in transitioning to past ownership. Using a control function approach with appropriate exclusion restrictions, we estimate the effects of beliefs while controlling both for selection into or out of Bitcoin ownership and for possible simultaneity. We find evidence that beliefs are significant predictors of exit, while the size and direction of these effects differ across time and ownership status.

Suggested Citation

  • Daniela Balutel & Christopher Henry & Jorge Vásquez & Marcel Voia, 2024. "The Role of Beliefs in Entering and Exiting the Bitcoin Market," Staff Working Papers 24-22, Bank of Canada.
    • Handle: RePEc:bca:bocawp:24-22
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    References listed on IDEAS

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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Bank notes; Central bank research; Coronavirus disease (COVID-19); Financial services; International topics;
    All these keywords.

    JEL classification:

    • E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money
    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • F22 - International Economics - - International Factor Movements and International Business - - - International Migration

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