The Bitcoin price formation: Beyond the fundamental sources

TL;DR

This paper investigates how various fundamental, macroeconomic, financial, speculative, and technical factors influence Bitcoin prices across different market conditions, using Bayesian quantile regression to reveal their varying impacts.

Contribution

It introduces a Bayesian quantile regression approach to analyze the differential influence of multiple determinants on Bitcoin prices across market states.

Findings

Bitcoin use in trade and macroeconomic uncertainties significantly influence prices during market improvements.

Market anxiety, such as Trump's election, positively affects Bitcoin prices in normal conditions.

Fundamentals like velocity, gold price, and hash rate impact Bitcoin during market downturns.

Abstract

Much significant research has been done to investigate various facets of the link between Bitcoin price and its fundamental sources. This study goes beyond by looking into least to most influential factors-across the fundamental, macroeconomic, financial, speculative and technical determinants as well as the 2016 events-which drove the value of Bitcoin in times of economic and geopolitical chaos. We use a Bayesian quantile regression to inspect how the structure of dependence of Bitcoin price and its determinants varies across the entire conditional distribution of Bitcoin price movements. In doing so, three groups of determinants were derived. The use of Bitcoin in trade and the uncertainty surrounding China's deepening slowdown, Brexit and India's demonetization were found to be the most potential contributors of Bitcoin price when the market is improving. The intense anxiety over Donald Trump being the president of United States was shown to be a positive determinant pushing up the price of Bitcoin when the market is functioning around the normal mode. The velocity of bitcoins in circulation, the gold price, the Venezuelan currency demonetization and the hash rate were found to be the fundamentals influencing the Bitcoin price when the market is heading into decline.