Do Connections Pay Off in the Bitcoin Market?

49 Pages Posted: 22 Mar 2021

See all articles by Kwok Ping Tsang

Kwok Ping Tsang

Virginia Polytechnic Institute & State University

Zichao Yang

Virginia Polytechnic Institute & State University - Department of Economics

Date Written: March 12, 2021

Abstract

This paper identifies the bitcoin investor network and studies the relationship between connections and returns. Using transaction data from the bitcoin blockchain, we reach three conclusions. First, on average, annualized returns of connected addresses in the network are 20.75% above those of their unconnected peers. Second, returns also differ among those connected addresses. By dividing the connected addresses into ten deciles based on their centrality, we find that addresses in the two most-connected deciles earn higher returns than the other connected addresses. Third, eigenvector centrality is more related than degree centrality to higher returns, implying that quality of connections matters.

Keywords: Bitcoin, Networks, Centrality, Asset Returns

JEL Classification: C55, G11, G14, L14

Suggested Citation

Tsang, Kwok Ping and Yang, Zichao, Do Connections Pay Off in the Bitcoin Market? (March 12, 2021). Available at SSRN: https://ssrn.com/abstract=3803959 or http://dx.doi.org/10.2139/ssrn.3803959

Kwok Ping Tsang

Virginia Polytechnic Institute & State University ( email )

250 Drillfield Drive
Blacksburg, VA 24061
United States

HOME PAGE: http://https://sites.google.com/site/byrontkp/

Zichao Yang (Contact Author)

Virginia Polytechnic Institute & State University - Department of Economics ( email )

3021 Pamplin Hall
Blacksburg, VA 24061
United States

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