Bitcoins and Bank Runs: Analysis of Market Imperfections and Investor Hysterics

Abstract

The “Bank Run” phenomenon in financial market is characterized at least in part by panicked market psychology and a subjacent market fragility, but as this discussion paper notes, the Bitcoin market is also at risk due to unsavvy and uninformed investors, speculative second-order capital, weak regulatory presence, validation lagtimes, illiquidity, a lack of asset insurance, and above all, a high concentration of Bitcoins in but a few hands (the “Whale” phenomenon). This discussion paper raises the question of “bank run” scenarios in the exit case for Bitcoin investors in a panicked situation.

Keywords: Bitcoin, Blockchain, Cryptocurrency, Financial Crisis, Panic, Investor Psychology