Factors Influencing Cryptocurrency Prices: Evidence from Bitcoin, Ethereum, Dash, Litecoin, and Monero

TL;DR

This study analyzes key factors influencing the prices of five major cryptocurrencies from 2010 to 2018, highlighting the roles of market dynamics, attractiveness, and stock market correlations using ARDL models.

Contribution

It provides new insights into the long- and short-term determinants of cryptocurrency prices, emphasizing the slow formation of attractiveness and cointegration with traditional markets.

Findings

Market factors significantly influence prices in both short- and long-run.

Cryptocurrency attractiveness impacts long-term prices, indicating slow recognition.

SP500 index has weak or negative impact on cryptocurrency prices.

Abstract

This paper examines factors that influence prices of most common five cryptocurrencies such as Bitcoin, Ethereum, Dash, Litecoin, and Monero over 2010-2018 using weekly data. The study employs ARDL technique and documents several findings. First, cryptomarket-related factors such as market beta, trading volume, and volatility appear to be significant determinant for all five cryptocurrencies both in short- and long-run. Second, attractiveness of cryptocurrencies also matters in terms of their price determination, but only in long-run. This indicates that formation (recognition) of the attractiveness of cryptocurrencies are subjected to time factor. In other words, it travels slowly within the market. Third, SP500 index seems to have weak positive long-run impact on Bitcoin, Ethereum, and Litcoin, while its sign turns to negative losing significance in short-run, except Bitcoin that generates an estimate of -0.20 at 10% significance level. Lastly, error-correction models for Bitcoin, Etherem, Dash, Litcoin, and Monero show that cointegrated series cannot drift too far apart, and converge to a long-run equilibrium at a speed of 23.68%, 12.76%, 10.20%, 22.91%, and 14.27% respectively.