How to Price a Digital Currency? Empirical Insights on the Influence of Media Coverage on the Bitcoin Bubble
MKWI 2014 (Paderborn) & Banking and Information Technology, Vol.15, No. 1, 2014
Posted: 29 Apr 2014 Last revised: 21 May 2015
Date Written: April 29, 2014
Digital currencies are gaining more and more attention against the backdrop of recent events triggered by the ongoing economic crisis. While digital currencies face increasing popularity, the currencies' prices are free floating and subject to high volatility as a result of lacking fundamental valuation methods. On the basis of an overview over the most prominent currency -- Bitcoin -- and an economic literature review we propose an econometric model that incorporates the basic components of the current price discovery process of a digital currency's exchange rate. On the basis of our empirical validation we further show that, in the case of Bitcoin, price volatility is significantly influenced by the media coverage and positive sentiment.
Keywords: Bitcoin, Digital Currency, Investor Behavior, Media Coverage, Virtual Currency
JEL Classification: G00, G10, G11
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