Are bitcoin returns predictable

Abstract

Bitcoin is the most radical of the cryptocurrencies which are becoming popular
\nnowadays. The advantage of the cryptocurrencies is that they are decentralized
\nsystems so do not need central banks. The purpose of this study is to determine if
\nthere is a volatility in the returns of Bitcoin and if so, whether it is predictable.
\nThe volatility of the Bitcoin returns was investigated using the log-normal
\nstochastic volatility model and stochastic volatility model with leverage for daily
\ndata covering the period between 19.12.2011 and 29.01.2018. While there is no
\nsignificant leverage effect in the Bitcoin returns, it has been revealed that the
\nvolatility is permanent and unpredictable. The unpredictability of Bitcoin returns’
\nfluctuations suggests that it is risky to use it as an investment tool or currency. It
\nis increasing day by day that Bitcoin takes place of banknotes or digital money,
\nwhich are conventional means of payment. The more widespread the system, the
\nsafer and the more resistant to speculations it is. The widespread popularity of
\nBitcoin may facilitate its recognition by states and inclusion in traditional
\npayment methods.