Major determinants of Bitcoin price: Application of a vector error correction model

The purpose of this article is to analyze the effect that halving has on the fair market value of bitcoins. The main hypothesis of the study is that the decline in the cost of miners’ remuneration for mining is a significant factor that affects the price of cryptocurrencies. The article examines the factors that regulate the issuing process. The significance of a limited supply of bitcoin is detailed in the article, as well as the mechanism for the implementation of the issue of new bitcoins. The study compares the historical inflation data of the US dollar and the projected data on the inflation of bitcoin. The article analyzes the main technical element of cryptocurrency – halving – when the miner’s reward is halved. This analysis includes the mathematical methods of statistical data processing. Research results show that reducing remuneration by half every four years leads to an increased market value of the cryptocurrency. This relationship is clearly illustrated by the Kendall rank correlation method. The results of the study can have a significant impact on the fundamental assessment of bitcoin and can also enable investors to assess any of the existing and operating cryptocurrencies according to this method.

The purpose of the paper is to select the right market proxy for calculating the expected return, since critically evaluating proxies or selecting the correct proxy market portfolio is essential for portfolio management because the change in the market portfolio proxy affects returns. In this study, monthly data of equity indices are evaluated to find out the better market proxy. The indices taken are BSE 30 (Sensex), Nifty 50, BSE 100, BSE 200, and BSE 500. The macroeconomic variables used in the study are industrial production index (IIP), consumer price index (CPI), money supply (M1), and exchange rate in India. To avoid the influence of COVID-19, the research period was from January 2013 to December 2019 to critically evaluate these proxies in order to find the most appropriate market proxy. This paper reveals a noteworthy relationship between stock market returns and macroeconomic factors, while suggesting that the BSE 500 is a better choice for all equity indices, as the index also shows a significant relationship with all macroeconomic variables. BSE500 is a composite index comprising all sectors with low, mid and large cap securities, therefore it reflects the impact of macroeconomic factors most efficiently, taking it as a market proxy. This study was carried out in the context of India and can be replicated for other countries.

The emergence of Bitcoin in 2009 has received considerable attention surrounding the validity of cryptocurrencies as a viable and, in some jurisdictions, a legal currency alternative. Despite widespread concern that these cryptocurrencies are fostering the environment within which a substantial bubble can occur, it is important to analyze whether these new assets are behaving similarly to major international currencies. This paper investigates the effects of international monetary policy changes on bitcoin returns using a GARCH (1.1) estimation model. The results indicate that monetary policy decisions based on interest rates taken by the Federal Open Market Committee in the United States significantly impact upon bitcoin returns. After controlling for international effects, we find significant evidence of volatility effects driven by United States, European Union, United Kingdom and Japanese quantitative easing announcements. These results show that, despite its nature and ideals, bitcoin seems to be subject to the same economic factors as traditional fiat currencies, and is not entirely unaffected by government policies. This result has implications for investors using bitcoin as a hedging or diversification tool. In addition, we contribute to the existing debate regarding the classification of bitcoin as an asset class, by illustrating that bitcoin volatility exhibits various reactions that bear resemblance to both currency pairs and store-of-value assets.