Crypto-Currency: Trends and Determinants

Abstract

In this paper, author analyses the role of cryptocurrencies in the economy and showed the trends of prices of Bitcoin and Ethereum in terms of US$ during 2017m1-2021m12 and also showed the trends of the market capitalization of Bitcoin during 2017m1-2021m12. All the trendlines are non-linear with cyclical behavior. Traditional regression model revealed that the market capitalization of Bitcoin is positively related with prices of Bitcoin and inflation rate and negatively related with price of Ethereum significantly from 2019m1 to 2021m12. Cointegration and VEC model suggested that the market capitalization of Bitcoin has long run causality with the prices of Bitcoin and Ethereum and inflation rate but the cointegrating equation has been proved diverging away from equilibrium. Bitcoin price and market capitalization have bi-directional short run causality and the price of Ethereum has short run causality to market capitalization of Bitcoin during the specified period. The volatility of market capitalization of Bitcoin showed a non-stationary process.