A new method to verify Bitcoin bubbles: Based on the production cost |
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| Institution: | 1. Dublin City University Business School, Glasnevin, Dublin 9, Ireland;2. Trinity Business School, Trinity College Dublin, Dublin 2, Ireland;3. Anglia Ruskin Univeristy, Lord Ashcroft Business School, Lord Ashcroft Building, Chelmsford, CM1 1SQ, United Kingdom;1. School of Business, China East University of Science and Technology, 200237 Shanghai, China;2. Chair of Entrepreneurial Risks, Department of Management, Technology and Economics, ETH Zurich, Kreuplatz 5, CH-8032 Zurich, Switzerland;3. School of Economics and Management, Beihang University, 100191 Beijing, China;4. Swiss Finance Institute, Switzerland;5. University of Geneva, 40 blvd. Du Pont d''Arve, CH 1211 Geneva 4, Switzerland |
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| Abstract: | As the first kind of digital cryptocurrency, the Bitcoin price cycle provides an opportunity to test bubble theory in the digital currency era. Based on the existing asset bubble theory, we verified the Bitcoin bubble based on the production cost with the application of VAR and LPPL models, and this method achieved good predictive power. The following conclusions are reached: (1) PECR is constructed to depict the deviation degree between the price and production cost, while BC is used to illustrate the bubble size in the price, and both are effective measures; (2) the number of unique addresses is a suitable measure of the use value of Bitcoin, and this result has passed the Granger causality test; (3) PECR and BC are verified via the LPPL model, and the next large bubble is expected in the second half of 2020. Considering that Bitcoin will see 'output halved' in May 2020, this prediction is a high-probability event. |
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| Keywords: | Bitcoin bubble Production cost |
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