Financial Bubbles in Bitcoin and Altcoin Cryptocurrency Markets

Year 2021, Volume: 13 Issue: 24, 165 - 180, 10.05.2021

Mehmet Fatih Buğan

https://doi.org/10.20990/kilisiibfakademik.880126

Cited By: 7

Abstract

Purpose: This research aims to investigate the existence of financial bubbles in the Bitcoin and altcoin cryptocurrency markets.
Design/Methodology: The study uses the data of Bitcoin and the first five cryptocurrencies which come after Bitcoin in terms of their market capitalization (Ethereum, Litecoin, Chainlink, Ripple, and Cardano). The GSADF test is used to detect financial bubbles in the cryptocurrency market.
Findings: Financial bubbles were detected in Bitcoin and altcoins according to the findings of the study. While the bubbles detected for Bitcoin, Ethereum, Ripple, and Chainlink are statistically significant, the financial bubbles detected for Litecoin and Cardano are not statistically significant.
Limitations: In the study the altcoin cryptocurrency market is represented by the data of the top five cryptocurrencies in terms of their market capitalization. As per more than four thousand altcoins traded in various exchanges at the beginning of 2021, the data set of 5 altcoins used in the study could be considered as the limitation of the study.
Originality/Value: The study provides important findings for researchers, policymakers, professionals, and investors. The usage of the most current data set in the study has made it possible to identify the existence of financial bubbles at the end of 2020. Therefore, the study is expected to contribute to the relevant literature.

Keywords

Bitcoin, Altcoins, Cryptocurrency Markets, Financial Bubbles

Bitcoin ve Altcoin Kripto Para Piyasalarında Finansal Balonlar

Abstract

Amaç: Bu araştırmanın amacı, Bitcoin ve altcoin kripto para piyasalarında finansal balonların varlığını araştırmaktır.
Tasarım/Yöntem: Çalışmada, Bitcoin ve piyasa değeri açısından Bitcoin’den sonra gelen ilk beş kripto para birimine (Ethereum, Litecoin, Chainlink, Ripple ve Cardano) ait veriler kullanılmıştır. Kripto para piyasasında finansal balonların tespitinde GSADF testi kullanılmıştır.
Bulgular: Çalışma sonucunda Bitcoin ve altcoinlerde finansal balonlar tespit edilmiştir. Bitcoin, Ethereum, Ripple ve Chainlink için tespit edilen balonlar istatistiksel olarak anlamlı iken Litecoin ve Cardano için tespit edilen finansal balonlar istatistiksel olarak anlamlı değildir.
Sınırlılıklar: Çalışmada altcoin kripto para piyasasını temsilen piyasa değeri bakımından ilk beş kripto para birimine ait veriler kullanılmıştır. 2021 yılı başında çeşitli borsalarda işlem gören dört binden fazla altcoin olduğu göz önünde bulundurulduğunda çalışmanın veri setinin çalışmanın kısıtını oluşturduğu söylenebilir.
Özgünlük/Değer: Çalışmadan elde edilen bulgular, araştırmacılar, politika yapıcılar, profesyoneller ve yatırımcılar açısından önem arz etmektedir. Çalışmada kullanılan veri setinin güncel olması 2020 yılı sonunda gerçekleşen finansal balonların tespitini olanaklı kılmıştır. Bu nedenle de çalışmanın ilgili literatüre katkı sağlaması beklenmektedir.

Keywords

Bitcoin, Altcoin, Kripto Para Piyasası, Finansal Balonlar

References

• Adämmer, P., & Bohl, M. T. (2015). Speculative bubbles in agricultural prices. The Quarterly Review of Economics and Finance, 55, 67-76. https://doi.org/10.1016/j.qref.2014.06.003
• Agosto, A., & Cafferata, A. (2020). Financial bubbles: A study of co-explosivity in the cryptocurrency market. Risks, 8(2), 34. https://doi.org/10.3390/risks8020034
• Baek, C., & Elbeck, M. (2015). Bitcoins as an investment or speculative vehicle? A first look. Applied Economics Letters, 22(1), 30-34. https://doi.org/10.1080/13504851.2014.916379
• Baur, D. G., Hong, K., & Lee, A. D. (2018) Bitcoin: Medium of exchange or speculative assets? Journal of International Financial Markets, Institutions and Money, 54, 177-189. https://doi.org/10.1016/j.intfin.2017.12.004
• Bertus, M., & Stanhouse, B. (2001). Rational speculative bubbles in the gold futures market: An application of dynamic factor analysis. Journal of Futures Market, 21(1), 79-108. https://doi.org/10.1002/1096-9934(200101)21:1<79::AID-FUT4>3.0.CO;2-D
• Bianchetti, M., Ricci, C., & Scaringi, M. (2018). Are cryptocurrencies real financial bubbles? Evidence from quantitative analyses. A version of this paper was published in Risk, 26 January 2018, http://dx.doi.org/10.2139/ssrn.3092427
• Bouri, E., Shahzad, S. J. H., & Roubaud, D. (2019). Co-explosivity in the cryptocurrency market. Finance Research Letters, 29, 178-183. https://doi.org/10.1016/j.frl.2018.07.005
• Cagli, E. C. (2019). Explosive behavior in the prices of Bitcoin and altcoins. Finance Research Letters, 29, 398-403. https://doi.org/10.1016/j.frl.2018.09.007
• Chan, K., McQueen, G., & Thorley, S. (1998) Are there rational speculative bubbles in Asian stock markets? Pacific-Basin Finance Journal, 6(1-2), 125-151. https://doi.org/10.1016/S0927- 538X(97)00027-9
• Cheah, E-T., & Fry, J. (2015) Speculative bubbles in Bitcoin markets? An empirical investigation into the fundamental value of Bitcoin. Economics Letters, 130, 32-36. https://doi.org/10.1016/j.econlet.2015.02.029
• Choi, S. H., & Jarrow, R. (2020). Testing the local martingale theory of bubbles using cryptocurrencies. http://dx.doi.org/10.2139/ssrn.3701960
• Ciaian, P., Rajcaniova, M., & Kancs, D. A. (2016), The economics of Bitcoin price formation. Applied Economics, 48(19), 1799-1815. https://doi.org/10.1080/00036846.2015.1109038
• Corbet, S., Lucey, B., & Yarovaya, L. (2018). Datestamping the Bitcoin and Ethereum bubbles. Finance Research Letters, 26, 81-88. https://doi.org/10.1016/j.frl.2017.12.006
• Çelikhan, F. F., & Kılıç, Y. (2019). Bitcoin kullanım davranışlarına yönelik bir araştırma. İçinde E. Gemici (Ed.), Teorik ve ampirik perspektifte seçilmiş finans konuları (ss. 115-146). Nobel Bilimsel Eserler.
• Çütcü, İ., & Kılıç, Y. (2018). Bitcoin fiyatları ile dolar kuru arasındaki ilişki: Yapısal kırılmalı zaman serisi analizi. Yönetim ve Ekonomi Araştırmaları Dergisi, 16(4), 349-366. https://doi.org/10.11611/yead.474993
• Diba, B. T., & Grossman, H. I. (1988). Explosive rational bubbles in stock prices?. American Economic Review, 78(3), 520-530. https://www.jstor.org/stable/1809149
• Evans, G. (1986). A test for speculative bubbles in the Sterling-Dollar exchange rate: 1981-84. The American Economic Review, 76(4), 621-636. February 9, 2021, http://www.jstor.org/stable/1806063
• Fry, J., & Cheah, E-T. (2016). Negative bubbles and shocks in cryptocurrency markets. International Review of Financial Analysis, 47, 343-352. https://doi.org/10.1016/j.irfa.2016.02.008
• Gemi̇ci̇, E., & Polat, M. (2019a). Bitcoin fiyatlarında eşik değer etkisi. Mehmet Akif Ersoy Üniversitesi İktisadi ve İdari Bilimler Fakültesi Dergisi, 6(3), 669-681. https://doi.org/10.30798/makuiibf.593500
• Gemici, E., & Polat, M. (2019b). Relationship between price and volume in the Bitcoin market. The Journal of Risk Finance, 20(5), 435-444. https://doi.org/10.1108/JRF-07-2018-0111
• Geuder, J., Kinateder, H., & Wagner, N. F. (2019). Cryptocurrencies as financial bubbles: The case of Bitcoin. Finance Research Letters, 31, 179-184. https://doi.org/10.1016/j.frl.2018.11.011
• Goodman, A., & Thibodeau, T. (2008). Where are the speculative bubbles in the US housing markets? Journal of Housing Economics, 17, 117-137. https://doi.org/10.1016/j.jhe.2007.12.001
• Harvey, D. I., Leybourne, S. J., Sollis, R., & Taylor, A. R. (2016). Tests for explosive financial bubbles in the presence of non-stationary volatility. Journal of Empirical Finance, 38, 548-574. https://doi.org/10.1016/j.jempfin.2015.09.002
• Hencic, A., & Gouriéroux, C. (2015). Noncausal autoregressive model in application to Bitcoin/USD exchange rates. In: V. N. Huynh, V. Kreinovich, S. Sriboonchitta, & K. Suriya (Eds). Econometrics of risk. Studies in computational intelligence, 583, Springer, Cham. https://doi.org/10.1007/978-3-319-13449-9_2
• Homm, U., & Breitung, J. (2012). Testing for speculative bubbles in stock markets: A comparison of alternative methods. Journal of Financial Econometrics, 10(1), 198-231. https://doi.org/10.1093/jjfinec/nbr009
• Hui, E. C. M., Ng, I., & Lau, O. M. F. (2011). Speculative bubbles in mass and luxury properties: An investigation of the Hong Kong residential market. Construction Management and Economics, 29(8), 781-79. https://doi.org/10.1080/01446193.2011.610329
• Johansen, A., & Sornette, D. (1999). Log-periodic power law bubbles in Latin-American and Asian markets and correlated anti-bubbles in Western stock markets: An empirical study. arXiv preprint cond-mat/9907270.
• Kılıç, Y. (2020a). Multiple bubbles in bitcoin market. In O. Krivenko, & Z. Alimgerey (Eds.) Taras Shevchenko 5TH international congress on social sciences (pp. 175-181). İksad Publications.
• Kılıç, Y. (2020b). Finansal piyasalarda balon varlığının test edilmesi: BRICS-T ülkeleri örneği. Bankacılık ve Sermaye Piyasası Araştırmaları Dergisi, 4(9), 11-22. https://dergipark.org.tr/en/pub/bspad/issue/55354/747719
• Kılıç, Y., & Çütcü, İ. (2018). Bitcoin fiyatları ile Borsa İstanbul endeksi arasındaki eşbütünleşme ve nedensellik ilişkisi. Eskişehir Osmangazi Üniversitesi İİBF Dergisi, 13(3), 235-250. https://doi.org/10.17153/oguiibf.455083
• Koçoğlu, Ş., Çevik, Y. E., & Tanrıöven, C. (2016). Bitcoin piyasalarının etkinliği, likiditesi ve oynaklığı. İşletme Araştırmaları Dergisi, 8(2), 77-97. https://doi.org/10.20491/isarder.2016.170
• Kyriazis, N., Papadamou, S., & Corbet, S. (2020). A systematic review of the bubble dynamics of cryptocurrency prices. Research in International Business and Finance, 54, 101254. https://doi.org/10.1016/j.ribaf.2020.101254
• Lammerding, M., Stephan, P., Trede, M., & Wilfling, B. (2013). Speculative bubbles in recent oil price dynamics: Evidence from a Bayesian Markov-switching state-space approach. Energy Economics, 36, 491-502. https://doi.org/10.1016/j.eneco.2012.10.006
• Nakamoto, S. (2008). Bitcoin: A peer-to-peer electronic cash system. https://www.klausnordby.com/bitcoin/Bitcoin_Whitepaper_Document_HD.pdf
• Oran, A. (2011). Balonları daha iyi tanımaya çalışmak: Balon tanımları, modelleri ve lale çılgınlığı örneği. Dokuz Eylül Üniversitesi İktisadi ve İdari Bilimler Fakültesi Dergisi, 26(1), 151-161. https://dergipark.org.tr/en/pub/deuiibfd/issue/22731/242609
• Pachal, S. (2017). Rational mining on Bitcoin [Unpublished Master dissertation]. Indian Statistical Institute.
• Pallas, R. (2012). Bitcoin securit. [Unpublished Master dissertation]. Tallin University of Technology.
• Pavlidis, E. G., Paya, I., & Peel, D. A. (2017). Testing for speculative bubbles using spot and forward prices. International Economic Review, 58(4), 1191-1226. https://doi.org/10.1111/iere.12249
• Phillip, A., Chan, J., & Peiris, S. (2018). A new look at cryptocurrencies. Economics Letters, 163, 6-9. https://doi.org/10.1016/j.econlet.2017.11.020
• Phillips, P. C. B., Shi, S., & Yu, J. (2015). Testing for multiple bubbles: Historical episodes of exuberance and collapse in the S&P 500. International Economic Review, 56(4), 1043-1078. https://doi.org/10.1111/iere.12132
• Phillips, P. C. B., Wu, Y., & Yu, J. (2011) Explosive behavior in the 1990s Nasdaq: When did exuberance escalate asset values? International Economic Review 52, 201-226. https://doi.org/10.1111/j.1468-2354.2010.00625.x
• Phillips, P. C., & Yu, J. (2011). Dating the timeline of financial bubbles during the subprime crisis. Quantitative Economics, 2(3), 455-491. https://doi.org/10.3982/QE82
• Souza, M. C., Souza, E. T. C., & Pereira, H. C. I. (2017). Cryptocurrencies bubbles: New evidences. The Empirical Economics Letters, 16(7), 739-746. https://www.researchgate.net/profile/Michel-De-Souza-2/publication/316170102_Cryptocurrencies_Bubbles_New_Evidences/links/5b61a9cea6fdccf0b20569aa/Cryptocurrencies-Bubbles-New-Evidences.pdf
• Tegene, A., & Kuchler, F. R. (1993). Evidence on the existence of speculative bubbles in farmland prices. The Journal of Real Estate Finance and Economics, 6(3), 223-236. https://link.springer.com/content/pdf/10.1007/BF01096959.pdf
• Vyas, A., & Lunagaria, M. (2014). Security concerns and issues for Bitcoin. International Journal of Computer Applications (IJCA), (0975–8887), 10-12. https://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.667.5197&rep=rep1&type=pdf
• West, K. D. (1988). Bubbles, fads and stock price volatility tests: A partial evaluation. The Journal of Finance, 43(3), 639-656. https://doi.org/10.1111/j.1540-6261.1988.tb04596.x
• Wheatley, S., Sornette, D., Huber, T., Reppen, M., & Gantner, R. N. (2019) Are Bitcoin bubbles predictable? Combining a generalized Metcalfe’s Law and the log-periodic power law singularity model. Royal Society Open Science, 6, 180538. https://doi.org/10.1098/rsos.180538
• Woo, W. (1987). Some evidence of speculative bubbles in the foreign exchange markets. Journal of Money, Credit and Banking, 19(4), 499-514. https://doi:10.2307/1992617
• Yermack, D. (2013). Is Bitcoin a real currency? An economic appraisal, National Bureau of Economic Research, Working Paper 19747, http://www.nber.org/papers/w19747