Microstructure theory applied in RMB exchange rate and Bitcoin market price

Abstract

This dissertation presents the application of microstructure theory on the RMB exchange rate\nand Bitcoin market price. The existing research on the RMB exchange rate and Bitcoin market price\nmainly studied their statistical characteristics through empirical methodologies. This dissertation\nfills the research gap in microstructure theory applied to the RMB exchange rate and Bitcoin market\nprice. First, the model for the determination of the two Renminbi (RMB) exchange rates and their\ninteractions is established, and empirical analysis suggests that the interactions among the two\nexchange rates and the explanatory variables are time-varying, in particular, after the "811 RMB\nexchange rate reform", the offshore RMB exchange rate replaced the onshore RMB exchange rate as\nthe leading indicator. Second, a model describing the speculative behavior in the Bitcoin trading\nmarket is developed. This theoretical model captures the statistical characteristics of Bitcoin\nmarket prices. The fundamental value of Bitcoin system is controversial, and the mysterious and\ninnovative features of the Bitcoin system incite the speculation behaviours. The speculation leads\nto the market bubble that brought the soaring and plunges of Bitcoin market price. Finally, an\neconomic model for Bitcoin mining competition based on the Bitcoin protocol is established, which\nprovides a benchmark for further research on mining competition in economics. For any Bitcoin\nminers, the equilibrium input depends on the comparison of the miner's own marginal cost with\nthat of other miners, however, whether profit can be obtained or not depends on the miner's own\nfixed cost.