Recent scaling properties of Bitcoin price returns

TL;DR

This paper examines the evolving scaling properties of Bitcoin returns, revealing a shift from inverse square to inverse cubic law, and analyzes autocorrelation and volatility to understand market dynamics.

Contribution

It provides new insights into the changing tail behavior of Bitcoin returns and their autocorrelation structure over recent periods.

Findings

Bitcoin tail index shifted from ~2 to ~3 over time

Autocorrelation of absolute returns follows a power-law with two exponents

Bitcoin returns are consistent with normal variables with time-varying volatility

Abstract

While relevant stylized facts are observed for Bitcoin markets, we find a distinct property for the scaling behavior of the cumulative return distribution. For various assets, the tail index $\mu$ of the cumulative return distribution exhibits $\mu \approx 3$, which is referred to as "the inverse cubic law." On the other hand, that of the Bitcoin return is claimed to be $\mu \approx 2$, which is known as "the inverse square law." We investigate the scaling properties using recent Bitcoin data and find that the tail index changes to $\mu \approx 3$, which is consistent with the inverse cubic law. This suggests that some properties of the Bitcoin market could vary over time. We also investigate the autocorrelation of absolute returns and find that it is described by a power-law with two scaling exponents. By analyzing the absolute returns standardized by the realized volatility, we verify that the Bitcoin return time series is consistent with normal random variables with time-varying volatility.