Cryptocurrencies

Crypto Covered Interest Parity Deviations

15.January 2021

Bitcoin and other currencies are frequently discussed nowadays. The debate has emerged mainly because of the strong uptrend in the Bitcoin price. In this blog post, we will leave the price patters to others. We will instead present interesting novel research connected to the well known theoretical model in the fiat currencies – the Covered Interest Rate Parity (CIP). If the CIP holds, interest rates and both the spot and forward rates of two countries should be in equilibrium. Novel research of Franz and Valentin (2020) examines the CIP in BTC/USD pair. The CIP theory states that there should be no arbitrage opportunities, but how the CIP holds in such a volatile market, where individual investors/traders seem to dominate? According to research, there were significant CIP deviations in the past, but it changed with the launch of BTC/USD futures in CME and high-frequency traders’ market entry. Moreover, the second event was much more successful in the reduction of deviations.

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Benford’s Law Suggests Bitcoin’s Price Manipulation

29.September 2020

Bitcoin is quite a controversial topic among the public. Many are interested in the blockchain technology or trade the cryptocurrencies , but the Bitcoin also has many opponents. Most frequently, Bitcoin is criticized for its volatility or a lack of supervision; some even call the Bitcoin a fraud. Yet many argue that blockchain is transparent. Novel research by Peterson examines the price manipulation using Benford’s law and a linkage to the anecdotal evidence of known manipulation. In theory, the distribution of leading digits in numerical data should follow the Benford´s law and any significant deviations usually signal a fraud. According to the results, in the history of bitcoin prices, several frauds were detected. The results have important implication for the Bitcoin; therefore, this research is probably a must-read for anyone interested in cryptocurrencies.

Authors: Timothy Peterson

Title: To the Moon: A History of Bitcoin Price Manipulation

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Cryptocurrency Volatility Index

23.July 2020

Whenever traders want to assess the stock market’s mood, there is one really popular and useful index the most of them turn to. Yes, you guessed it right, it’s CBOE’s VIX Index. And which index can we use if we want to determine the mood of the cryptocurrencies? We can turn to a paper written by Fabian Woebbeking, which offers the methodology to compute two cryptocurrency volatility indexes (CVX & CVX76). The CVX and CVX76 Indexes also extract the market’s expectation of future volatility from option prices, but from options on the Bitcoin. The research suggests that the cryptocurrency option market has finally reached a sufficient market size to extract stable cryptocurrency volatility information.

Authors: Fabian Woebbeking

Title: Cryptocurrency Volatility Markets

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Bitcoin in a Time of Financial Crisis

16.March 2020

One of the very often promoted attributes of Bitcoin is said to be its “safe heaven” characteristic. Some cryptocurrency proponents advocate that Bitcoin can be used as a store of value mainly during the economic and financial crisis. We argue that it’s not so.

Bitcoin (and all cryptocurrencies too) is, in our opinion, fundamentally more similar to stocks of small companies from the technological sector. It is a very speculative bet on blockchain technology. It may seem unrelated to the broader equity market (like the S&P 500 index) during normal times. But when a stressful time comes, investors are more concerned to meet a deadline for the next mortgage payment. This is the time when the speculative bets are closed, and cash is raised. And this is precisely the time when Bitcoin falls as equities do too.

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What is the Bitcoin’s Risk-Free Interest Rate?

7.February 2020

Some see Bitcoin (BTC) as a payment method of the future; others see it as a speculative asset class. Despite the speculative activity connected with Bitcoin, after all, it is a currency that is different from fiat currencies like the US Dollar or Euro. If you hold fiat currency, there is an opportunity to earn a risk-free rate. But is there the same opportunity also in Bitcoin? And what are the Bitcoin’s risk-free and market rates? These are the questions we had in Quantpedia, and we invite you to join us in our thought experiment that tries to answer them …

Authors: Vojtko, Padysak

Title: What is the Bitcoin’s Risk-Free Interest Rate?

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Metcalfe’s Law in Bitcoin

12.August 2019

Cryptocurrencies are a new asset class, and researchers have just started to understand better fundamental forces which are behind their price action. A new research paper shows that Bitcoin’s price can be modeled by Metcalfe’s Law. Bitcoin (and other cryptocurrencies) are in this characteristic very similar to Facebook as their value depends on the number of active users – network size

Authors: Peterson

Title: Bitcoin Spreads Like a Virus

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