Asymmetric effects of climate policy uncertainty and energy prices on bitcoin prices

This paper investigates the asymmetric effects of climate policy uncertainty (CPU) and the global price of energy index (GPEI) on Bitcoin prices. It applies the nonlinear ARDL method and the Granger causality test to examine how changes in climate policy uncertainty and energy prices influence Bitcoin prices. Using the monthly data of CPU, GPEI, and BTC from 2013M10–2021M12, the findings show that CPU's increases and GPEI's decreases positively affect BTC in the short term. Specifically, CPU and GPEI's increase and decrease show significantly higher effects on BTC in the long term. The causality result shows bidirectional causality between BTC and CPU's increases/decreases, while unidirectional causality runs from GPEI's increases/decreases to BTC. These findings suggest that Bitcoin investors should be aware of the risks associated with climate policy uncertainty and fluctuations in energy prices, as these factors can significantly asymmetrically impact Bitcoin prices

The Bitcoin Blockchain as Financial Market Infrastructure: A Consideration of Operational Risk

“Blockchain” is the word on the street these days, with every significant financial institution experimenting with this new technology. Many say that this remarkable innovation could radically transform our financial system, eliminating the costs and inefficiencies that plague our existing financial infrastructures. Venture capital investments are pouring into blockchain startups, which are scrambling to disrupt the “quadrillion” dollar markets represented by existing financial market infrastructures. A debate rages over whether public, “permissionless” blockchains (like Bitcoin’s) or private, “permissioned” blockchains are more desirable. Amidst this flurry of innovation and investment, this paper inquires into the suitability of the Bitcoin blockchain to serve as the backbone of financial market infrastructure, and evaluates whether it is robust enough to serve as the foundation of major payment, settlement, clearing, or trading systems. Positing a scenario in which the Bitcoin blockchain does serve as the technology enabling significant financial market infrastructures, this paper highlights the vital importance of functioning financial market infrastructure to global financial stability, and describes relevant principles that global financial regulators have adopted to help maintain this stability, focusing particularly on governance, risk management, and operational risk. The paper then moves to explicate the operational risks generated by the most fundamental features of Bitcoin: its status as decentralized, open-source software. Illuminating the inevitable operational risks of software, the paper argues that these technology risks are exacerbated by the governance risks generated by Bitcoin’s ambiguous governance structure. The paper then teases out the operational risks spawned by decentralized, open-source governance, including that no one is responsible for resolving a crisis with the software; no one can legitimately serve as “the voice” of the software; code maintenance and repair may be delayed or imperfect because not enough time is devoted to the code by volunteer software developers; and consensus on important changes to the code may be difficult or impossible to achieve, leading to splits in the blockchain. The paper concludes that these operational risks, generated by Bitcoin’s most fundamental structures significantly undermine the Bitcoin blockchain’s suitability to serve as financial market infrastructur

Evaluating prevailing Bitcoin valuation models – how do they work and how do they perform today?

Bitcoin has, since the first coin was mined in 2009, taken the world by storm. Today, millions of people are embracing the digital currency, and is evident that the growth is not going to halt any time soon. The increased adoption of Bitcoin raises the question about the fair value of the asset. What is the best way to fairly value Bitcoin, if it has any fundamental value at all? Numerous valuation models for Bitcoin have been proposed throughout the years. The majority of today's most popular models were presented between 2017 and 2019, and much has transpired since then. In this thesis, we will examine Bitcoin's underlying technology and the opportunities and challenges it brings for the contemporary world. Currently, we are discovering that digital assets and Bitcoin offer a number of opportunities that provide utility and convenience for consumers that utilize the digital asset market. To maintain objectivity, we will also discuss the issues connected with the widespread use of digital assets like Bitcoin. Finally, we will explore whether present techniques of valuing Bitcoin may be regarded as a "fair" manner of valuing Bitcoin. In addition, we will contribute to the existing research on Bitcoin valuation by suggesting improvements in the current valuation methods that we believe holds merit

Evaluating prevailing Bitcoin valuation models – how do they work and how do they perform today?

Bitcoin has, since the first coin was mined in 2009, taken the world by storm. Today, millions of people are embracing the digital currency, and is evident that the growth is not going to halt any time soon. The increased adoption of Bitcoin raises the question about the fair value of the asset. What is the best way to fairly value Bitcoin, if it has any fundamental value at all? Numerous valuation models for Bitcoin have been proposed throughout the years. The majority of today's most popular models were presented between 2017 and 2019, and much has transpired since then. In this thesis, we will examine Bitcoin's underlying technology and the opportunities and challenges it brings for the contemporary world. Currently, we are discovering that digital assets and Bitcoin offer a number of opportunities that provide utility and convenience for consumers that utilize the digital asset market. To maintain objectivity, we will also discuss the issues connected with the widespread use of digital assets like Bitcoin. Finally, we will explore whether present techniques of valuing Bitcoin may be regarded as a "fair" manner of valuing Bitcoin. In addition, we will contribute to the existing research on Bitcoin valuation by suggesting improvements in the current valuation methods that we believe holds merit

Bitcoin and Volatility: Does the Media Play a Role?

The worlds first successful crypto currency (Bitcoin) has gained a lot of attention both positive and negative. The main issue keeping Bitcoin from being fully accepted by the public is its high volatility and unpredictability. This research provides an empirical analysis that offers insights into the factors that cause Bitcoin to maintain a high price volatility. The primary goal of the research is to determine whether or not the media plays a role on Bitcoin volatility. Our model uses ordinary least squares regression analysis to support the findings of previous research that generally uses GARCH models. The results show that Bitcoin volatility is primarily correlated with Google trends search data. Furthermore we find that negative news announcements have a significant positive correlation with Bitcoin volatility; whereas, economic health indicator variables yield insignificant results. Although our analysis suggest Bitcoin is an unsafe investment tool, we propose a number of future research possibilities that should enhance our understanding of crypto currencies so that they can eventually be utilized to their fullest potential

Transnational Political Regulation of Bitcoin

Virtual currencies have recently emerged at the intersection of Internet and finance, bringing unprecedented innovations in payment systems, money and finance. In particular, Bitcoin is examined as the first example of virtual currency, dating back to 2009. Ever since virtual currencies emerged, they received increased attention from public, private and societal regulators, especially in the field of finance. Since regulation of Bitcoin is still in its infancy, this project will rather aim to unpack the underlying rationalities of power. Employing the concept of governmentality, this thesis performs Critical Discourse Analysis on policy papers, statements and press releases from public, private and societal regulators of finance. Rationalities of power and regulation are unpacked along three categories: ideas over the object that has to be regulated; ideas over the objectives that regulation has to achieve; ideas over the technical tools to be employed to achieve said aims. The results envision a future in which regulation will be public, transnational and permissive. The attitude of regulators is aimed at co-opetition, understood as a mix of competition and co-optation of virtual currencies in the current paradigm of regulation of money and finance. The future scenario will be mostly decided by strategic employment of material and institutional power by public and private actors in order either to limit or to support the adoption and diffusion of virtual currencies. However, it seems unlikely that virtual currencies will simply vanish in the future

On the Economics of Bitcoin Mining: A Theoretical Framework and Simulation Evidence

The stability of proof-of-work consensus underlying decentralized networks such as Bitcoin relies on an incentive compatible mining design. While theoretically well studied, the empirical composition of the mining process remains largely opaque due to the un-known distribution of miners and technology. This paper proposes a model that leverages innovation-driven convergence in the Bitcoin ecosystem to reconstruct market conditions and study miners’ behavior. Numerical simulations using 10,000 bootstrap samples sup-port the implications of the model. The results quantify considerable variation in miners’ profits and costs and proof consistent with the proposed theory. The estimates suggest that the cost of a capacity majority, and thus the ability to successfully attack the network, can be astonishingly low (e.g., $2.13 million in May 2020) when adverse events coincide. This pronounces the relevance of cyclical patterns when assessing the immutability of proof-of-work consensus

New Tech v. New Deal: Fintech as a Systemic Phenomenon

Fintech is the hottest topic in finance today. Recent advances in cryptography, data analytics, and machine learning are visibly disrupting traditional methods of delivering financial services and conducting financial transactions. Less visibly, fintech is also changing the way we think about finance: it is gradually recasting our collective understanding of the financial system in normatively neutral terms of applied information science. By making financial transactions easier, faster, and cheaper, fintech seems to promise a micro-level win-win solution to the financial system\u27s many ills. This Article challenges such narratives and presents an alternative account of fintech as a systemic, macro-level phenomenon. Grounding the analysis of evolving fintech trends in a broader institutional context, the Article exposes the normative and political significance of fintech as the catalyst for a potentially decisive shift in the underlying public-private balance of powers, competencies, and roles in the financial system. In developing this argument, the Article makes three principal scholarly contributions. First, it introduces the concept of the New Deal settlement in finance: a fundamental political arrangement, in force for nearly a century, pursuant to which profit-seeking private actors retain control over allocating capital and generating financial risks, while the sovereign public bears responsibility for maintaining systemic financial stability. Second, the Article advances a novel conceptual framework for understanding the deep-seated dynamics that have eroded the New Deal settlement in recent decades. It offers a taxonomy of core mechanisms that both (a) enable private actors to continuously synthesize tradable financial assets and scale up trading activities, and (b) undermine the public’s ability to manage the resulting system-wide risks. Finally, the Article shows how and why specific fintech applications – cryptocurrencies, distributed ledger technologies, digital crowdfunding, and robo-advising – are poised to amplify the effect of these destabilizing mechanisms, and thus potentially exacerbate the tensions and imbalances in today’s financial markets and the broader economy. It is this potential that renders fintech a public policy challenge of the highest order

Bitcoin: The Economic Case for a Global, Virtual Currency Operating in an Unexplored Legal Framework

Bitcoin is a virtual currency created by programmers, which is produced at a predetermined and knowable rate to simulate a limited resource. Its value is derived from the trust of its users and is protected by its limited nature and the cryptography by which the currency is secured and authenticated. Bitcoin has been, and continues to be, used by some for the purchase of illegal substances and in furtherance of crimes. Because Bitcoin is not issued by a central bank or government, its use entails risks, both legal and otherwise, that have not previously been explored. Nonetheless, Bitcoin possesses significant economic upside over traditional currencies and methods of transaction online. As a result, governments should further study Bitcoin and regulate businesses that exchange in Bitcoin, but without attempting to stop or slow the growth of the currency itself and without attacking otherwise law-abiding citizens who transact in Bitcoins