Bitcoin: Speculative Asset or Innovative Technology?
Journal of International Financial Markets, Institutions & Money, 2020
30 Pages Posted: 15 May 2020
Date Written: April 21, 2020
We unite investment by speculators and tech-savvy investors with a heterogeneous agent model.
While speculators seek to profit from extrapolating the price trends, tech-savvy investors trade based on the prospective value of Bitcoin, which is a function of factors that capture the market demand and technical supply of Bitcoin. Estimating the structural model, we find the coexistence of speculators and tech-savvy investors in the Bitcoin market. We further show that, regardless of the market states, tech-savvy investors consistently buy (sell) Bitcoin when its price goes below (above) the prospective value. However, speculators follow a momentum trading strategy in the high-market-volatility regime and switch to a contrarian strategy in the low-market-volatility regime. Our finding suggests that a significant fraction of tech-savvy investors value the potential of Bitcoin as an innovative technology. Incorporating heterogeneous investors yields better in-sample estimation efficiency and out-of-sample forecasting precision than models that consider only speculators or tech-savvy investors.
Keywords: Fintech; cryptocurrency; Tech-savvy investor; Heterogeneity; Speculation
JEL Classification: G12,G15
Suggested Citation: Suggested Citation