Distrust and Cryptocurrency Price Deviations

136 Pages Posted: 14 Dec 2021 Last revised: 2 Jan 2024

See all articles by Bo Tang

Bo Tang

London School of Economics & Political Science (LSE)

Yang You

The University of Hong Kong

Yulin Zhong

affiliation not provided to SSRN

Date Written: December 30, 2023

Abstract

Cryptocurrency prices differ across countries, and these price deviations fluctuate widely. Our paper provides evidence that distrust toward domestic authorities can explain the dynamics of local cryptocurrency prices relative to the U.S. dollar price. The price deviation rises after an outbreak of a financial crisis, political scandal, or socioeconomic event that undermines confidence in the domestic government or economy. With panel regressions, we show that Bitcoin price deviations increase by 1.8% when the institutional failure index rises by one standard deviation. These price responses are much stronger in countries with lower trust levels and during periods with tighter capital controls.

Keywords: Cryptocurrency, Trust, Limits of Arbitrage, Price Deviations, Institutional Failures

JEL Classification: G12, G15, M14

Suggested Citation

Tang, Bo and You, Yang and Zhong, Yulin, Distrust and Cryptocurrency Price Deviations (December 30, 2023). Available at SSRN: https://ssrn.com/abstract=3981990 or http://dx.doi.org/10.2139/ssrn.3981990

Bo Tang

London School of Economics & Political Science (LSE) ( email )

Houghton Street
London, WC2A 2AE
United Kingdom

Yang You (Contact Author)

The University of Hong Kong ( email )

Pokfulam Road
Hong Kong, HK
China

Yulin Zhong

affiliation not provided to SSRN

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