The main drivers of bitcoin volatility
Abstract
The volatility of Bitcoin prices has attracted several attentions from the media and the academic community. Although a majority of researches has been conducted on the price formation of Bitcoin, the inconsistencies presented in the findings make it difficult to draw definitive conclusions regarding the factors that affect its price movement. This present study is conducted with two purposes: The first purpose is to summarize important insights and events to give brief understanding about Bitcoin. The second purpose is to examine factors that affect Bitcoin price and retest to see if these relationships still hold. The chosen time horizon covers the 2017 Bitcoin Bubble. By using GARCH (1,1) model, the acquired results demonstrate factors that strongly relate to the demand of Bitcoin such as trade volume, total number of transactions excluding those conducted by 100 famous IDs, number of unique addresses illustrate a strong positive relationship with the price volatility. The public interest measured by Google search volume index that presents the investor attractiveness also shows significantly positive impact on Bitcoin price. The study further addresses supply and demand theorem and behavioral finance concept to interpret the results.