Equilibrium Bitcoin Pricing
74 Pages Posted: 17 Oct 2018 Last revised: 22 Feb 2022
Date Written: February 18, 2022
We offer a general equilibrium analysis of cryptocurrency pricing. The fundamental value of the cryptocurrency is its stream of net transactional benefits, which depend on its future prices. This implies that, in addition to fundamentals, equilibrium prices reflect sunspots. This, in turn, implies there are multiple equilibria and extrinsic volatility, that is, cryptocurrency prices fluctuate even when fundamentals are constant. To match our model to the data, we construct indices measuring the net transactional benefits of bitcoin. In our calibration, a fraction of the variations in bitcoin returns reflects changes in net transactional benefits, but a larger fraction reflects extrinsic volatility.
Keywords: cryptocurrency, asset pricing, bitcoin, equilibrium, calibration
JEL Classification: G1, G2, L86
Suggested Citation: Suggested Citation