What are the main drivers of the Bitcoin price? Evidence from wavelet coherence

[RagnarDanneskjold]

Academic study examines factors impacting bitcoin prices - from Ladislav Kristoufek at the Charles University in Prague, Czech Republic.



From arXiv:
Here, we tackle the price of the Bitcoin currency from a wider perspective. We focus on
various possible sources of the price movements, ranging from fundamental to speculative
and technical sources, and examine how the interconnections behave in time but also
at different scales (frequencies). To do so, we utilize continuous wavelet analysis and
specifically the wavelet coherence which is able to localize correlations between series,
its evolution in time and across scales.  Detailed description of wavelets framework used
in the text is provided in the Methods section. It needs to be stressed that both time
and frequency aspects are important for the Bitcoin price dynamics as the currency has
undergone a wild evolution in recent years and it would be naive to believe that the
driving forces of the prices have remained unchanged during its existence. In addition, the
frequency domain viewpoint gives an opportunity to distinguish between short-term and
long-term correlations. We show that indeed both time and frequency characteristics of the
dynamics are worth the investigation and various interesting relationships are uncovered.


Article in MIT Review

Full paper[pdf]

[1713568110]

1713568110

[Ron~Popeil]

Academic study examines factors impacting bitcoin prices - from Ladislav Kristoufek at the Charles University in Prague, Czech Republic.



From arXiv:
Here, we tackle the price of the Bitcoin currency from a wider perspective. We focus on
various possible sources of the price movements, ranging from fundamental to speculative
and technical sources, and examine how the interconnections behave in time but also
at different scales (frequencies). To do so, we utilize continuous wavelet analysis and
specifically the wavelet coherence which is able to localize correlations between series,
its evolution in time and across scales.  Detailed description of wavelets framework used
in the text is provided in the Methods section. It needs to be stressed that both time
and frequency aspects are important for the Bitcoin price dynamics as the currency has
undergone a wild evolution in recent years and it would be naive to believe that the
driving forces of the prices have remained unchanged during its existence. In addition, the
frequency domain viewpoint gives an opportunity to distinguish between short-term and
long-term correlations. We show that indeed both time and frequency characteristics of the
dynamics are worth the investigation and various interesting relationships are uncovered.


Article in MIT Review

Full paper[pdf]

This is way way over my head but I did want to say that I love your username. Who is John Galt?

[RagnarDanneskjold]

This is way way over my head but I did want to say that I love your username. Who is John Galt?

JG is all talk - Ragnar is a man of action.

for the TL;DR - just skip the math parts - there is some good stuff in here

[Trading]

Probably, a summary of the article for the lazy would make this thread more popular.

The MIT has published interesting analysis on price movements before.

[Trading]

Well, here it is, especially for the lazy ones: http://www.coindesk.com/study-speculation-driver-bitcoin-prices/

[twiifm]

Well, here it is, especially for the lazy ones: http://www.coindesk.com/study-speculation-driver-bitcoin-prices/

I couldn't understand the paper or the conclusions.  I guess I don't understand what a wavelet is

Doesn't seem like he has any conclusions except all these factors have some influence on price but he doesn't know how much

[twiifm]

He have a few conclusions.

But the new ones, don't seem good.

And the good ones, don't seem new.

Correct me if I'm wrong his conclusions are

China:  “Even though the USD and CNY markets are tightly connected, we find no clear evidence that the Chinese market influences the USD market.”  

Seems inconclusive

Bitcoin as safe haven:  “Apart from the Cypriot crisis, there are no longer-term time intervals where the correlations
are both statistically significant and reliable (in a sense of the cone of influence).”  

No correlation between BTC & safe haven

Market perception:  “The interest and prices are then negatively correlated and the interest still leads the relationship. However, the correlations are found at lower scales than for the bubble formation. The interest in bitcoin thus seems to have an asymmetric effect during the bubble formation and its bursting – during the bubble formation, the interest boosts the prices further, and during the bursting, it pushes them lower.”  

Price rises gradually but collapse quickly.  However, bubble doesn't burst all the way.  Seems like what he's saying is that price keeps going up because new speculators find out about bitcoin.  But the price rises are from speculative activity since they collapse quickly which are markings of a bubble

Fundamentals:  “Even though bitcoin is usually labelled as a purely speculative asset, we find that standard
fundamental factors – usage in trade, money supply and price level – play a role in bitcoin prices in the long term.”

This is where I question his conclusions.  He doesn't cite any fundamentals.  (I don't think BTC has any fundamentals).  However he seems to be saying that bitcoin price driver is more like speculative short term but he thinks long term price is driven by fundamentals

[Trading]

I gave up on reading all the details of the article, however:

On the issue of the role of China being mostly about volume, he seems to base this conclusion on data from the times of the leading role of MtGox. Now, clearly, are the chinese markets that are leading, first, Huobi, and now Okcoin. Even when the western price is higher, bitstamp, bitfinex go higher or lower, fowling Okcoin.

He seems to compare bitcoin with short term safe havens, like gold, the swiss franc or even the US dollar. Clearly, bitcoin doesn't have that status. At most is a safe haven for long term pessimist.

I think is wrong to qualify price level as a fundamental. Even fiat supply seems to be no fundamental element. Fundamental will be the element that moves that supply.

I think we can consider as bitcoin fundamental the increase of retailers or users of bitcoin.

His conclusions on the role of interest in the pump and dumps of bitcoin seems consensual.

[Ron~Popeil]

He have a few conclusions.

But the new ones, don't seem good.

And the good ones, don't seem new.

Correct me if I'm wrong his conclusions are

China:  “Even though the USD and CNY markets are tightly connected, we find no clear evidence that the Chinese market influences the USD market.”  

Seems inconclusive

Bitcoin as safe haven:  “Apart from the Cypriot crisis, there are no longer-term time intervals where the correlations
are both statistically significant and reliable (in a sense of the cone of influence).”  

No correlation between BTC & safe haven

Market perception:  “The interest and prices are then negatively correlated and the interest still leads the relationship. However, the correlations are found at lower scales than for the bubble formation. The interest in bitcoin thus seems to have an asymmetric effect during the bubble formation and its bursting – during the bubble formation, the interest boosts the prices further, and during the bursting, it pushes them lower.”  

Price rises gradually but collapse quickly.  However, bubble doesn't burst all the way.  Seems like what he's saying is that price keeps going up because new speculators find out about bitcoin.  But the price rises are from speculative activity since they collapse quickly which are markings of a bubble

Fundamentals:  “Even though bitcoin is usually labelled as a purely speculative asset, we find that standard
fundamental factors – usage in trade, money supply and price level – play a role in bitcoin prices in the long term.”

This is where I question his conclusions.  He doesn't cite any fundamentals.  (I don't think BTC has any fundamentals).  However he seems to be saying that bitcoin price driver is more like speculative short term but he thinks long term price is driven by fundamentals

Thanks for breaking that down a bit. As long as we stay above the last low when a bubble bursts we build long term value. SO the bottom value right now is somewhere around $420 or so. Hopefully the next burst is around $600 and so on. I would love to also see some capital flight to bit coin when other markets have bursts as it would mean that it is seen as a safe store of value.