The Bitcoin Premium: A Persistent Puzzle

Abstract

Abstract On average, stocks have a much higher rate of return than bonds; this has led to research on the equity premium puzzle . Similarly, Bitcoin outperforms stocks; I call this the Bitcoin premium puzzle . I show that standard macroeconomic models predict a low or negative Bitcoin premium. Though Bitcoin is extremely volatile, the model is rejected even when the coefficient of relative risk aversion is above 10. The Bitcoin premium declined after a structural break in late 2013. However, the puzzle is persistent; there has been no downward trend in the premium since.