Chaos and Order in the Bitcoin Market
Josselin Garnier, Knut Solna

TL;DR
This paper investigates the multi-fractal and correlation structures of Bitcoin prices, introducing new tools to detect regime shifts and revealing an underlying order despite high volatility.
Contribution
It introduces a novel approach using generalized Hurst exponents and power-law parameters to analyze Bitcoin's market regimes and correlation structures.
Findings
Bitcoin exhibits multi-scale correlation structures with power-law behavior.
The proposed method detects known market events through regime shifts.
Bitcoin's overall correlation structure remains orderly despite volatility.
Abstract
The bitcoin price has surged in recent years and it has also exhibited phases of rapid decay. In this paper we address the question to what extent this novel cryptocurrency market can be viewed as a classic or semi-efficient market. Novel and robust tools for estimation of multi-fractal properties are used to show that the bitcoin price exhibits a very interesting multi-scale correlation structure. This structure can be described by a power-law behavior of the variances of the returns as functions of time increments and it can be characterized by two parameters, the volatility and the Hurst exponent. These power-law parameters, however, vary in time. A new notion of generalized Hurst exponent is introduced which allows us to check if the multi-fractal character of the underlying signal is well captured. It is moreover shown how the monitoring of the power-law parameters can be used to…
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Taxonomy
TopicsComplex Systems and Time Series Analysis · Opinion Dynamics and Social Influence · Complex Network Analysis Techniques
