Bitcoin has enjoyed wider adoption than any previous cryptocurrency; yet its success has also attracted the attention of fraudsters who have taken advantage of operational insecurity and transaction irreversibility. We study the risk that investors face from the closure of Bitcoin exchanges, which convert between Bitcoins and hard currency. We examine the track record of 80 Bitcoin exchanges established between 2010 and 2015. We find that nearly half (38) have since closed, with customer account balances sometimes wiped out. Fraudsters are sometimes to blame, but not always. Twenty-five exchanges suffered security breaches, 15 of which subsequently closed. We present logistic regressions using longitudinal data on Bitcoin exchanges aggregated quarterly. We find that experiencing a breach is correlated with a 13 times greater odds that an exchange will close in that same quarter. We find that higher-volume exchanges are less likely to close (each doubling in trade volume corresponds to a 12% decrease in the odds of closure). We also find that exchanges that derive most of their business from trading less popular (fiat) currencies, which are offered by at most one competitor, are less likely to close.
We demonstrate that investors obtain abnormal returns by trading cryptocurrencies daily on the London Stock Exchange from 2014–2017. Excess returns persist once we account for systematic risk, size, value, momentum, profitability and investment. Investor abnormal returns in cryptocurrencies implies inefficiency.
Abstract The oil and Gas industry has recently transformed itself into a data-intensive industry – artificial intelligence, machine learning and internet of things. With such growth and expansion, distributed ledger technology, commonly known as blockchain, can carry the industry's transformation forward. This technology can help the industry to overcome various challenges such as price volatility, supply chain, accounting, data management and security. It can also help in streamlining various engineering and technical decisions. Technologically, the oil and gas industry has been very innovative – 3-D seismic, hydraulic fracturing, geosteering, imaging beneath salt, etc. However, the administrative and managerial functions are still done in a somewhat traditional way. The Blockchain technology can help the industry become more efficient by streamlining these traditional methodologies. This paper presents the four major areas where the blockchain technology can help the industry overcome various day to day challenges – (1) Supply Chain and Trading, (2) Regulatory, (3) Database Management and (4) Cyber Security. Like any new technology, the blockchain technology might not get a full embrace at the beginning, but the idea is to present a qualitative study about its benefits. The industry currently has little or no knowledge about this technology, which is expected to bring transparency, security and convenience in one place. The objective of this paper is to help the industry peers understand the idea behind this technology and how it can transform the way the industry currently operates. It provides a frame of reference for the industry to realize the potential of this technology and assess its benefits.
Nino Antulov-Fantulin, Dijana Tolić, Matija Piškorec, Ce Zhang · 5 authors
In this paper, we study the possibility of inferring early warning indicators (EWIs) for periods of extreme bitcoin price volatility using features obtained from Bitcoin daily transaction graphs. We infer the low-dimensional representations of transaction graphs in the time period from 2012 to 2017 using Bitcoin blockchain, and demonstrate how these representations can be used to predict extreme price volatility events. Our EWI, which is obtained with a non-negative decomposition, contains more predictive information than those obtained with singular value decomposition or scalar value of the total Bitcoin transaction volume.
We investigate connectedness within and across two major groups or assets: i) five popular cryptocurrencies, and ii) six major asset classes plus two commonly employed risk factors. Granger-causality tests uncover six direct channels of causality from the elements of the mainstream assets/risk factors group to digital assets. On the other hand there are two statistically significant causal links going in the other direction. In order to provide some perspective on the magnitude of the uncovered linkages we supplement the analysis by estimating networks from forecast error variance decompositions. The estimated connectedness within the groups is relatively large, whereas the linkages across the two groups are small in comparison. Namely, less than 2.2 percent of future uncertainty of any cryptocurrency is sourced from all non-crypto assets combined, while the joint contribution of all digital assets to non-crypto uncertainty does not exceed 1.5 percent.
This article deals with the concepts of social currencies and cryptocurrencies. The objective of the present paper is to identify similarities and differences between to two currency systems which represent a new generation of money that exists alongside the official and legal money system. The paper includes an analysis of the major characteristics of both currencies, their operating mechanisms in global and local contexts, as well as their risks and challenges for the financial markets. The article uses a mainly documentary research method and presents selected contributions of experts on the topics of social currencies and cryptocurrencies. Furthermore, empirical evidence is presented to highlight some important characteristics of the Bitcoin currency. The principal result of the paper is that, indeed there exist similarities between social currencies and cryptocurrencies, as for example the absence of a central bank, a lack of regulation and a limited minting process. However, because of aspects like their different origins, their local vs. global character and their inherent financial risks, the two money systems need to be interpreted as fundamentally different. Especially with reference to globally operating cryptocurrencies, given that there does not exist any public cover of the currency nor sufficient regulation, risk management mechanisms need to be improved in order to diminish the speculative tendencies inherent to this currency.
This paper is a sequel to our previous works related to Robo-advisors and cryptocurrencies. Our goal now is to build two application modules for a single Robo-advisor. The first module is a Long short-term memory (LSTM) neural network which forecasts cryptocurrencies prices daily. The second module uses Robo-advising approach to build an investment plan for novice cryptocurrencies investors with different risk attitude investment decisions. The third module does ETL (Extract-Transform-Load) for a statistics dataset and neural networks models. Results of the investigation show that investing in cryptocurrencies can give 23.7% per year for risk-averse, 31.8% per year for risk-seeking investors and 16.5% annually for riskneutral investors.
Pilar Grau Carles, Diego Jaureguizar Arellano, Carlos Jaureguizar Francés
In this paper we examine the characteristics of the daily price series of 16 different cryptocurrencies between July 2017 and February 2018. The methodologies used for the analysis are the so-called Minimum Spanning Tree (MST) and hierarchical analysis by dendrogram, both obtained Pearson correlations between daily returns. This methodology visualizes the market relationships between the assets analyzed, identifying a high correlation between price movements for all the currencies. In addition, it has been possible to identify Ethereum’s position as a benchmark currency in the cryptocurrency market, rather than Bitcoin, as one might expect, due to its popularity and trading volume.
This paper tackles the shortcomings of the traditional centralized stock exchange systems, such as high transaction fees, centralized governance susceptible to attacks and lack of openness regarding the market actions and algorithms, by proposing an innovative architecture using blockchain to develop a decentralized stock exchange and an open continuous market. The proposed blockchain based solution solves the drawbacks of the centralized stock exchange architecture by ensuring the integrity and security of the owner's assets and orders, self-enforcing smart agreements between parties as well as achieving democratic and reliable decisions regarding the execution and settlement of the orders through consensus algorithms. The proposed architecture uses smart contracts to enforce the validation of the owner's rights and the correct execution and settlement of the orders, thus eliminating the need of a central authority that ensures the correctness of the stock exchange process. The solution was validated by implementing a prototype in Ethereum for a subset of rules for the Bucharest Stock Exchange. The experimental results show that the decentralized solution can offer lower transaction fees by replacing the commissions owed to brokers and central authorities with mining fees that are used to compensate the miners for their honest work in keeping the integrity of the system.
Libing Fang, Elie Bouri, Rangan Gupta, David Roubaud
We assess whether the long-run volatilities of Bitcoin, global equities, commodities, and bonds are affected by global economic policy uncertainty. Empirical results provide evidence supporting that, except for the case of bonds. We further examine whether the correlation between Bitcoin and global equities, commodities, and bonds are affected by global economic policy uncertainty and the results reveal that global economic policy uncertainty has a negative significant impact on the Bitcoin-bonds correlation, and a positive impact on both Bitcoin-equities and Bitcoin-commodities correlations, suggesting a possibility for Bitcoin to act as a hedge under specific economic uncertainty conditions. Interestingly, the hedging effectiveness of Bitcoin for both global equities and global bonds enhances slightly after considering the level of global economic policy uncertainty. Implications for investors and policy-makers are discussed.
This research is based on the phenomenon of new investment instrument called Cryptocurrency-Bitcoin which becomes popular in recent years. Based on that phenomenon, this research tries to search which is the best investment instrument from three instruments such as Bitcoin, stocks, and gold. The research method used is quantitative method with the type of research is comparative descriptive. In this study, the authors use Sharpe, Treynor and Jensen index approach to evaluate the performance. This study intends to do a comparison from the index using the data of the investment instrument in the period of January 2014 to August 2017. The study sample was taken from price result from every investment instrument during the period of study. The result shows that Bitcoin is the best instrument because based on Sharpe, Treynor, and Jensen value the return is better than the other two instruments.