Do Connections Pay Off in the Bitcoin Market?

69 Pages Posted: 22 Mar 2021 Last revised: 18 Jan 2022

See all articles by Kwok Ping Tsang

Kwok Ping Tsang

Virginia Tech

Zichao Yang

Wenlan School of Business, Zhongnan University of Economics and Law

Date Written: January 16, 2022

Abstract

This paper identifies the bitcoin investor network and studies the relationship between connections and returns. Using transaction data recorded in the bitcoin blockchain from 2015 to 2020, we reach three conclusions. First, connectedness is not strongly correlated with higher returns in the first four years. However, the correlation becomes strong and significant in 2019 and 2020. Second, returns also differ among those connected addresses. By dividing the connected addresses into ten decile groups based on their centrality, we find that the top 20% most-connected addresses earn higher returns than their peers during most of our sample period. Third, eigenvector centrality is more related to higher returns than degree centrality for the top 20% most-connected addresses, implying that the quality of connections may matter more than quantity among those highly connected addresses.

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? (January 16, 2022). Available at SSRN: https://ssrn.com/abstract=3803959 or http://dx.doi.org/10.2139/ssrn.3803959

Kwok Ping Tsang

Virginia Tech ( email )

250 Drillfield Drive
Blacksburg, VA 24061
United States

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

Zichao Yang (Contact Author)

Wenlan School of Business, Zhongnan University of Economics and Law ( email )

No.143, Wuluo Road
Wuhan, Hubei 430073
China

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