Is the Bitcoin price dynamics economically reasonable? Evidence from fundamental laws

摘要

Dynamics of the Bitcoin price as the most prominent cryptocurrency is studied in the light of two fundamental economic laws - the Law of One Price and the Equation of Exchange. Utilizing the unprecedented data availability of Bitcoin statistics, we are able to construct a theoretical exchange rate base of the cryptocurrency with respect to the US dollar. Through the concept of statistical equilibrium verified by the cointegration relationship, we show several interesting points. First, the Bitcoin price dynamics is very well captured by the underlying transaction data which leads to a strong fundamental basis of the cryptocurrency. Second, several historical bubbles hit the confidence intervals around the fundamental price but then start their correction back to the equilibrium. Third, the fundamental price implied by the transaction data is not ever-increasing but reflects the ups and downs of Bitcoin utility in transactions. And fourth, our theory-implied fundamental price suggests that the current (December 2018) Bitcoin price is very close to its fundamental price estimated at around $3,500. (C) 2019 Elsevier B.V. All rights reserved.