Is Bitcoin a Commodity? On Price Jumps, Demand Shocks, and Certainty of Supply

Marc Gronwald (Corresponding Author)

Research output: Contribution to journalArticle

Abstract

This paper discusses how similar Bitcoin is to a commodity. The application of a number of both linear and non-linear GARCH models indicates that the role of extreme price movements is particularly pronounced. GARCH models with student-t innovations as well as combined jump-GARCH models are among the models with the best fit. The role of large movements is found to be stronger in the Bitcoin market than in the markets for crude oil and gold. As Bitcoin shares
with these exhaustible resource commodities characteristics such as the fixed supply, the analysis of Bitcoin prices can generally learn from the analysis of exhaustible resource commodities. However, whereas the short-run supply of gold and oil are uncertain, there are no uncertainties on the Bitcoin supply-side. Thus, the observed movements of Bitcoin prices can be interpreted as results of Bitcoin demand shocks.
Original languageEnglish
Pages (from-to)86-92
Number of pages7
JournalJournal of International Money and Finance
Volume97
Early online date5 Jul 2019
DOIs
Publication statusE-pub ahead of print - 5 Jul 2019

Fingerprint

Jump
Demand shocks
Commodities
GARCH model
Exhaustible resources
Short-run
Supply side
Oil
Uncertainty
Crude oil
Innovation

Keywords

  • Bitcoins
  • GARCH
  • Jump models
  • Bitcoin demand shocks
  • Price jumps
  • Security of supply
  • MARKET
  • INEFFICIENCY
  • RETURNS
  • DYNAMICS
  • EXCHANGE
  • VOLATILITY

Cite this

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title = "Is Bitcoin a Commodity? On Price Jumps, Demand Shocks, and Certainty of Supply",
abstract = "This paper discusses how similar Bitcoin is to a commodity. The application of a number of both linear and non-linear GARCH models indicates that the role of extreme price movements is particularly pronounced. GARCH models with student-t innovations as well as combined jump-GARCH models are among the models with the best fit. The role of large movements is found to be stronger in the Bitcoin market than in the markets for crude oil and gold. As Bitcoin shareswith these exhaustible resource commodities characteristics such as the fixed supply, the analysis of Bitcoin prices can generally learn from the analysis of exhaustible resource commodities. However, whereas the short-run supply of gold and oil are uncertain, there are no uncertainties on the Bitcoin supply-side. Thus, the observed movements of Bitcoin prices can be interpreted as results of Bitcoin demand shocks.",
keywords = "Bitcoins, GARCH, Jump models, Bitcoin demand shocks, Price jumps, Security of supply, MARKET, INEFFICIENCY, RETURNS, DYNAMICS, EXCHANGE, VOLATILITY",
author = "Marc Gronwald",
note = "The author gratefully acknowledges useful comments by Beat Hintermann and Stefan Trueck as well as seminar and conference participants at the Society for Computational Economics Annual Conference 2016, the CESifo Area Conference for Macro, Money and International Finance, University of Dundee, University of East Anglia, University College Dublin, and Macquarie University Sydney. Furthermore, the author is indebted to Sandrine Ngo for motivating me to study the economics of Bitcoins.",
year = "2019",
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language = "English",
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AB - This paper discusses how similar Bitcoin is to a commodity. The application of a number of both linear and non-linear GARCH models indicates that the role of extreme price movements is particularly pronounced. GARCH models with student-t innovations as well as combined jump-GARCH models are among the models with the best fit. The role of large movements is found to be stronger in the Bitcoin market than in the markets for crude oil and gold. As Bitcoin shareswith these exhaustible resource commodities characteristics such as the fixed supply, the analysis of Bitcoin prices can generally learn from the analysis of exhaustible resource commodities. However, whereas the short-run supply of gold and oil are uncertain, there are no uncertainties on the Bitcoin supply-side. Thus, the observed movements of Bitcoin prices can be interpreted as results of Bitcoin demand shocks.

KW - Bitcoins

KW - GARCH

KW - Jump models

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KW - Price jumps

KW - Security of supply

KW - MARKET

KW - INEFFICIENCY

KW - RETURNS

KW - DYNAMICS

KW - EXCHANGE

KW - VOLATILITY

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