The Determinant of Bitcoin Prices in Korea

Abstract

This paper analyzes the factors affecting the price of Bitcoin which has recently received a lot of attention. Specifically, we distinguish three factors of supply and demand, real economic factors, and psychological factors, and examine the effect of these variables on Bitcoin price. This is related to the issues that crypto-currency can function like real money, or it can replace financial investment assets such as existing stock markets as an investment alternative, what effect it has on the real economy, and it will rely on investors’ attention and psychology. The results of this study show that the price of Bitcoin is more influenced by investors’ attention and psychological factors such as Naver trend index and newspaper articles, rather than being influenced by rational variables such as supply and demand variables or real economic variables. This means that Bitcoin fever and downfall were more likely to be irrational bubbles than were supported by economic value. Key words: Crypto-Currency; Bitcoin; Real Economy; Demand and Supply; Psychological Factor JEL Classification: G11, G12, G41