Abstract
Bitcoin's exchange rate maintained relative stability during its inception, first exceeding $1 in February 2011. However, recent volatility has been extreme, with prices reaching **$7,458.79 by November 2017—yielding a 2.8 million-fold return** over 7 years. This study investigates factors influencing Bitcoin's exchange rate fluctuations through supply-demand analysis and econometric modeling.
Key Variables Analyzed:
- Gold prices
- Crude oil futures (Brent & WTI)
- USD Index
- JPY/USD & CNY/USD exchange rates
- Volatility Index (VIX)
Methodology:
Using 845 daily observations (Dec 2013–Jun 2017), we applied:
- Unit root tests (ADF & PP) to ensure data stationarity
- Vector Autoregression (VAR) to model dynamic relationships
- Granger causality tests to identify lead-lag effects
- Multiple regression to isolate significant predictors
Findings
- JPY/USD exchange rate (1-period lag) showed the strongest positive correlation with Bitcoin's price.
- Gold prices (1-period lag) also exhibited positive influence.
- Bitcoin's own lagged price had a negative relationship with current values.
Despite statistical significance, the model's low explanatory power suggests Bitcoin's price dynamics are largely random, potentially driven by speculation or policy shocks rather than traditional financial metrics.
FAQs
Q: Why study Bitcoin's exchange rate?
A: As a decentralized asset with unprecedented volatility, understanding its drivers helps investors and policymakers assess risks/opportunities in emerging digital currencies.
Q: How reliable are these findings given Bitcoin's novelty?
A: While limited by the short observation period, the methodologies (VAR, Granger tests) are well-established for financial time-series analysis. 👉 Learn more about crypto market analysis
Q: Could regulatory changes impact Bitcoin's price more than economic factors?
A: Yes—this study focused on market variables, but qualitative factors (e.g., bans, ETF approvals) often cause abrupt price shifts.
References
- Nakamoto, S. (2008). Bitcoin: A Peer-to-Peer Electronic Cash System.
- Tsay, R. S. (2002). Analysis of Financial Time Series. Wiley.
- Merrill Lynch (2013). Bitcoin: A First Assessment.
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