Cryptocurrency Adoption: The Role of Speculative Price Bubbles in Product Diffusion

49 Pages Posted: 6 Jun 2019 Last revised: 26 Dec 2019

See all articles by Yanhao 'Max' Wei

Yanhao 'Max' Wei

University of Southern California - Marshall School of Business

Anthony J. Dukes

University of Southern California - Marshall School of Business

Date Written: June 1, 2019

Abstract

We study product adoption in the context of a cryptocurrency market. Cryptocurrencies are subject to network effects and speculative investments, which are not part of standard models of product diffusion. To explore this unique setting, we marry models of stochastic bubbles and the standard model of product diffusion. A rational bubble is raised due to speculative investors seeking short-term gains. The participation of investors helps establish the value of the currency (as a medium of exchange). We find that a bubble accelerates the adoption, which can help explain the fast diffusion of bitcoin. There are reinforcing interactions between the speculative investors and regular users of currency, which can make it easier to form a bubble (compared to a setting without regular users). We also provide conditions under which bubbles may unravel.

Keywords: Product Adoption, Currency Marketing, Speculative Bubbles, Cryptocurrencies

Suggested Citation

Wei, Yanhao and Dukes, Anthony J., Cryptocurrency Adoption: The Role of Speculative Price Bubbles in Product Diffusion (June 1, 2019). Available at SSRN: https://ssrn.com/abstract=3397675 or http://dx.doi.org/10.2139/ssrn.3397675

Yanhao Wei (Contact Author)

University of Southern California - Marshall School of Business ( email )

701 Exposition Blvd
Los Angeles, CA 90089
United States

Anthony J. Dukes

University of Southern California - Marshall School of Business ( email )

701 Exposition Blvd
Los Angeles, CA 90089
United States
213-740-3846 (Phone)

HOME PAGE: http://sites.usc.edu/anthonydukes/

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