Self-sustained price bubbles driven by Bitcoin innovations and adaptive behavior
Trading and Market Microstructure
2021-01-01 v1
Abstract
We show that infinite divisibility of a trading commodity leads to a self-sustained price bubble when traders use adaptive investment strategies. The adaptive strategy can be viewed as a psychological response of a trader to the situation when the trader's estimation of future prices does not match the actual, realized price. We use a multi-agent model to illustrate the price bubble formation and to quantify its main statistical properties such as the return, the volatility, and the systematic risk of the price bubble to crash. We discuss the plausibility for bubbles to drive prices of digital currencies.
Keywords
Cite
@article{arxiv.2012.14860,
title = {Self-sustained price bubbles driven by Bitcoin innovations and adaptive behavior},
author = {Misha Perepelitsa and Ilya Timofeyev},
journal= {arXiv preprint arXiv:2012.14860},
year = {2021}
}