The Economics of Bitcoins -- Market Characteristics and Price Jumps

Abstract

This paper deals with the economics of Bitcoins in two ways. First, it broadens the discussion on how to capture Bitcoins using economic terms. Center stage in this analysis take the discussion of some unique characteristics of this market as well as the comparison of Bitcoins and gold. Second, the paper empirically analyses Bitcoin prices using an autoregressive jump-intensity GARCH model; a model tested and proven by the empirical finance community. Results suggest that Bitcoin price are particularly marked by extreme price movements; a behaviour generally observed in immature markets.

Keywords: bitcoins, jump models, commodity pricing

JEL Classification: C12, C22, C58, G12