Bitcoin Risk Modeling With Blockchain Graphs

5 Pages Posted: 14 Jun 2018

See all articles by Cuneyt Akcora

Cuneyt Akcora

University of Texas at Dallas - Erik Jonsson School of Engineering and Computer Science

Matthew Francis Dixon

Illinois Institute of Technology

Yulia Gel

Department of Mathematical Sciences

Murat Kantarcioglu

University of Texas at Dallas - Erik Jonsson School of Engineering and Computer Science

Date Written: May 10, 2018

Abstract

A key challenge for Bitcoin cryptocurrency holders, such as startups using ICOs to raise funding, is managing their FX risk. Specifically, a misinformed decision to convert Bitcoin to fiat currency could, by itself, cost USD millions. In contrast to financial exchanges, blockchain based crypto-currencies expose the entire transaction history to the public. By processing all transactions, we model the network with a high fidelity graph so that it is possible to characterize how the flow of information in the network evolves over time. We demonstrate how this data representation permits a new form of microstructure modeling - with the emphasis on the topological network structures to study the role of users, entities and their interactions in formation and dynamics of crypto-currency investment risk. In particular, we identify certain sub-graphs (‘chainlets’) that exhibit predictive influence on Bitcoin price and volatility, and characterize the types of chainlets that signify extreme losses.

Keywords: Cryptocurrencies, Graph Analysis, Forecasting, Financial Risk, GARCH, ICOs

JEL Classification: C58, C63, G18

Suggested Citation

Akcora, Cuneyt and Dixon, Matthew Francis and Gel, Yulia and Kantarcioglu, Murat, Bitcoin Risk Modeling With Blockchain Graphs (May 10, 2018). Available at SSRN: https://ssrn.com/abstract=3176651 or http://dx.doi.org/10.2139/ssrn.3176651

Cuneyt Akcora

University of Texas at Dallas - Erik Jonsson School of Engineering and Computer Science ( email )

Richardson, TX
United States

Matthew Francis Dixon (Contact Author)

Illinois Institute of Technology ( email )

Department of Math
W 32nd St., E1 room 208, 10 S Wabash Ave, Chicago,
Chicago, IL 60616
United States

Yulia Gel

Department of Mathematical Sciences ( email )

2601 North Floyd Road
Richardson, TX 75083
United States

Murat Kantarcioglu

University of Texas at Dallas - Erik Jonsson School of Engineering and Computer Science ( email )

Richardson, TX
United States

Register to save articles to
your library

Register

Paper statistics

Downloads
228
rank
131,762
Abstract Views
810
PlumX Metrics
!

Under construction: SSRN citations will be offline until July when we will launch a brand new and improved citations service, check here for more details.

For more information