Bitcoin's Fundamental Value and Speculative Bubbles: A New Behavioral Framework for Price Dynamics

Abstract

This paper presents a theoretical model examining the dynamic mechanism of Bitcoin's market price, emphasizing the aggregate effect from both intrinsic value and speculative behavior. The model categorizes the market participants as fundamentalists, who base their decisions on Bitcoin's intrinsic value, and speculators, who rely on historical price trends. The interaction between these two types of agents drives Bitcoin's market price, contributing to the notable volatility. Empirical analysis supports the theoretical model, revealing significant long-memory properties and volatility clustering in historical Bitcoin's price series. These findings enhance the understanding of Bitcoin as a financial asset with inherent value, influenced by speculative market dynamics.

Keywords: Bitcoin system, Intrinsic value, Market bubble, Fundamentalist, Speculator