Qingjie Du, Yang Wang, Chishen Wei, K. Wei, Haifeng You
We find that the speculative frenzy in bitcoin affects stock prices. Stocks that have non-fundamental return co-movement with bitcoin exhibit temporary over-valuation and subsequent return reversal that exceeds −1% per month. Instrumental variables analysis using Tether flows and authorizations supports a causal interpretation of our findings. Overall, the evidence is consistent with the rapid spread of speculative interest in high skewness strategies from the social transmission of ideas and suggests that investors may evaluate these stocks in a way that is consistent with the predictions of prospect theory.
{"title":"Does the speculative frenzy in bitcoin spread to the stock market?","authors":"Qingjie Du, Yang Wang, Chishen Wei, K. Wei, Haifeng You","doi":"10.2139/ssrn.3617910","DOIUrl":"https://doi.org/10.2139/ssrn.3617910","url":null,"abstract":"We find that the speculative frenzy in bitcoin affects stock prices. Stocks that have non-fundamental return co-movement with bitcoin exhibit temporary over-valuation and subsequent return reversal that exceeds −1% per month. Instrumental variables analysis using Tether flows and authorizations supports a causal interpretation of our findings. Overall, the evidence is consistent with the rapid spread of speculative interest in high skewness strategies from the social transmission of ideas and suggests that investors may evaluate these stocks in a way that is consistent with the predictions of prospect theory.","PeriodicalId":126646,"journal":{"name":"PSN: Exchange Rates & Currency (International) (Topic)","volume":"56 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2021-11-05","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"123900002","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
We show that change in Grayscale Bitcoin Trust premium is the single most significant predictor of Bitcoin daily return. This sentiment measure is similar to the closed-end fund discount measure as in Baker and Wurgler (2006), but more likely to reflect the excess demand from traditional investors than from blockchain specialists. Although there is a substantial variation in Bitcoin price quotes worldwide, this Grayscale premium and discount predict Bitcoin daily return for the most liquid Bitcoin exchanges. Using K-means clustering and LDA analysis, we find that this predictability is especially significant when there is a large variation in bullish and bearish market sentiment, innovation regarding CBDC, regulations on crypto exchanges, but not when there is innovation regarding blockchain technology or bitcoin mining. A simple long and short strategy based on this signal generates a daily alpha of 40 bps. These findings suggest that Bitcoin prices react with a delay to the information contained in the sentiment of traditional investors and investors who are constrained from directly holding Bitcoin.
{"title":"When Early Adopters Learn From the Followers: The Cryptocurrency Return Predictability of GBTC Discount and Premium","authors":"Lei Huang, Tse-Chun Lin, Fangzhou Lu","doi":"10.2139/ssrn.3948407","DOIUrl":"https://doi.org/10.2139/ssrn.3948407","url":null,"abstract":"We show that change in Grayscale Bitcoin Trust premium is the single most significant predictor of Bitcoin daily return. This sentiment measure is similar to the closed-end fund discount measure as in Baker and Wurgler (2006), but more likely to reflect the excess demand from traditional investors than from blockchain specialists. Although there is a substantial variation in Bitcoin price quotes worldwide, this Grayscale premium and discount predict Bitcoin daily return for the most liquid Bitcoin exchanges. Using K-means clustering and LDA analysis, we find that this predictability is especially significant when there is a large variation in bullish and bearish market sentiment, innovation regarding CBDC, regulations on crypto exchanges, but not when there is innovation regarding blockchain technology or bitcoin mining. A simple long and short strategy based on this signal generates a daily alpha of 40 bps. These findings suggest that Bitcoin prices react with a delay to the information contained in the sentiment of traditional investors and investors who are constrained from directly holding Bitcoin.","PeriodicalId":126646,"journal":{"name":"PSN: Exchange Rates & Currency (International) (Topic)","volume":"9 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2021-10-23","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"131764495","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
We survey large-scale cryptocurrency thefts over the past decade, estimating the total value of stolen cryptocurrencies. We find that depending on the timing of when the cryptocurrency was converted to fiat, the stolen amounts are valued between $5.7 billion to $78 billion, depending on how long the thief held the cryptocurrency versus converting to fiat currency. We also document that as the cryptocurrency market develops, the incidence of large-scale cryptocurrency thefts has also increased in both number and stolen values in recent years. Large-scale thefts can be attributed to security breaches accounting for 15 of the 24 thefts, human errors accounting for 4, and agency problems arising from insider thefts accounting for the remaining 5.
{"title":"A Decade of Cryptocurrency ‘Hacks’: 2011 – 2021","authors":"Ben Charoenwong, M. Bernardi","doi":"10.2139/ssrn.3944435","DOIUrl":"https://doi.org/10.2139/ssrn.3944435","url":null,"abstract":"We survey large-scale cryptocurrency thefts over the past decade, estimating the total value of stolen cryptocurrencies. We find that depending on the timing of when the cryptocurrency was converted to fiat, the stolen amounts are valued between $5.7 billion to $78 billion, depending on how long the thief held the cryptocurrency versus converting to fiat currency. We also document that as the cryptocurrency market develops, the incidence of large-scale cryptocurrency thefts has also increased in both number and stolen values in recent years. Large-scale thefts can be attributed to security breaches accounting for 15 of the 24 thefts, human errors accounting for 4, and agency problems arising from insider thefts accounting for the remaining 5.","PeriodicalId":126646,"journal":{"name":"PSN: Exchange Rates & Currency (International) (Topic)","volume":"79 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2021-10-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"128631682","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
We compare the explainability of cryptocurrency returns from macro and microeconomic risk factors during stressed and normal market environments, in particular, analyzing the effects of the COVID-19 pandemic to cryptocurrency return explainability. We find that risk-premiums are encapsulated within cryptocurrency-specific market factors in both stressed and normal market conditions. Furthermore, cryptocurrency factors, particularly relating to liquidity, momentum, and counterparty risk, showed evidence of providing stronger predictability of cryptocurrency returns during the COVID-19 pandemic compared to pre-pandemic levels. We find that during the stressed market environment, Fama-French 5 factors continue to provide low explainability to cryptocurrency returns.
{"title":"Risk Analysis of Cryptocurrency","authors":"Alexander Fleiss, Gihyen Eom, Eric Tu","doi":"10.2139/ssrn.3924387","DOIUrl":"https://doi.org/10.2139/ssrn.3924387","url":null,"abstract":"We compare the explainability of cryptocurrency returns from macro and microeconomic risk factors during stressed and normal market environments, in particular, analyzing the effects of the COVID-19 pandemic to cryptocurrency return explainability. We find that risk-premiums are encapsulated within cryptocurrency-specific market factors in both stressed and normal market conditions. Furthermore, cryptocurrency factors, particularly relating to liquidity, momentum, and counterparty risk, showed evidence of providing stronger predictability of cryptocurrency returns during the COVID-19 pandemic compared to pre-pandemic levels. We find that during the stressed market environment, Fama-French 5 factors continue to provide low explainability to cryptocurrency returns.","PeriodicalId":126646,"journal":{"name":"PSN: Exchange Rates & Currency (International) (Topic)","volume":"57 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2021-09-15","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"128837837","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Purpose: The purpose of this paper is to apply the theory of cycle of money in the case of Greece. Prior works have determined the economic characteristics of the case of Latvia, Serbia, and Bulgaria, according to the concept of the theory of cycle of money. The index of the cycle of money suggests how an economic system should counteract a monetary and fiscal crisis and studies how well-structured is Greece’s economy. The estimations of the index of the cycle of money of Greece are compared with the global average index of the cycle of money. The results reveal that Greece is above the average global value. Then, Greece’s results reveal that it is a well-structured economy and can face an economic crisis. The current work is important as represents the strength of Greece’s economy with emphasis to the period of 2012 - 2017, of financial and economic crisis. The theory of the cycle of money covers the gap that exists for the structure and functionality of the economy, which formed on the derivative of GDP, giving the cycle of money. Moreover, it is the only theory that enhances the economy, without any negative effect of the fiscal or the monetary policy, as uses the same amount of money of an economy appropriately.
{"title":"Index of the Cycle of Money - The Case of Greece","authors":"Constantinos Challoumis Κωνσταντίνος Χαλλουμής","doi":"10.25103/ijbesar.142.05","DOIUrl":"https://doi.org/10.25103/ijbesar.142.05","url":null,"abstract":"Purpose: The purpose of this paper is to apply the theory of cycle of money in the case of Greece. Prior works have determined the economic characteristics of the case of Latvia, Serbia, and Bulgaria, according to the concept of the theory of cycle of money. The index of the cycle of money suggests how an economic system should counteract a monetary and fiscal crisis and studies how well-structured is Greece’s economy. The estimations of the index of the cycle of money of Greece are compared with the global average index of the cycle of money. The results reveal that Greece is above the average global value. Then, Greece’s results reveal that it is a well-structured economy and can face an economic crisis. The current work is important as represents the strength of Greece’s economy with emphasis to the period of 2012 - 2017, of financial and economic crisis. The theory of the cycle of money covers the gap that exists for the structure and functionality of the economy, which formed on the derivative of GDP, giving the cycle of money. Moreover, it is the only theory that enhances the economy, without any negative effect of the fiscal or the monetary policy, as uses the same amount of money of an economy appropriately.","PeriodicalId":126646,"journal":{"name":"PSN: Exchange Rates & Currency (International) (Topic)","volume":"1 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2021-08-31","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"129055068","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
The interest in decentralized financial markets and cryptoassets is growing steadily, with by now an operationalized asset volume and assets under management (AUM) accounting towards a monetary equivalent of several billion USD. With growing public and investment interest, an intense academic debate surrounding the analysis of these alternative concepts in terms of financial market theory has started. In this context, the actual institutionalization of these new opportunities is a previously unaddressed field. This paper will deliver a first framework on the institutionalization process that cryptoassets and decentralized financial markets undergo within the current transition from experimental to institutional phases of the ecosystem with the help of selected literature and hypotheses derived from current trends in Decentralized Finance (DeFi). Furthermore, the paper will discuss the form of dependency of these new forms of financial markets, which are mostly based on the use of distributed ledger technologies (DLT), on institutional structures, outlining specific examples from a market organization perspective. The argumentation underlines the hypothesis that institutional components, such as decentralized governance features and proper incentive management systems, are key for widespread acceptance of alternative financial market concepts.
{"title":"The Institutionalization of Crypto Assets and Decentralized Financial Markets","authors":"Felix Bekemeier","doi":"10.2139/ssrn.3899162","DOIUrl":"https://doi.org/10.2139/ssrn.3899162","url":null,"abstract":"The interest in decentralized financial markets and cryptoassets is growing steadily, with by now an operationalized asset volume and assets under management (AUM) accounting towards a monetary equivalent of several billion USD. With growing public and investment interest, an intense academic debate surrounding the analysis of these alternative concepts in terms of financial market theory has started. In this context, the actual institutionalization of these new opportunities is a previously unaddressed field. This paper will deliver a first framework on the institutionalization process that cryptoassets and decentralized financial markets undergo within the current transition from experimental to institutional phases of the ecosystem with the help of selected literature and hypotheses derived from current trends in Decentralized Finance (DeFi). Furthermore, the paper will discuss the form of dependency of these new forms of financial markets, which are mostly based on the use of distributed ledger technologies (DLT), on institutional structures, outlining specific examples from a market organization perspective. The argumentation underlines the hypothesis that institutional components, such as decentralized governance features and proper incentive management systems, are key for widespread acceptance of alternative financial market concepts.","PeriodicalId":126646,"journal":{"name":"PSN: Exchange Rates & Currency (International) (Topic)","volume":"43 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2021-08-04","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"116028061","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
The aim of this paper is to propose a portfolio selection methodology capable to take into account asset tail co-movements as additional constraints in Markowitz model. We apply the methodology to the observed time series of the 10 largest crypto assets, in terms of market capitalization, over the period 20 September 2017–31 December 2020 (1200 daily observations). The results indicate that the portfolios selected considering tail risk are more diversified and, therefore, more resilient to financial shocks.
{"title":"Crypto Asset Portfolio selection","authors":"D. Ahelegbey, Paolo Giudici, Fatemeh Mojtahedi","doi":"10.2139/ssrn.3892999","DOIUrl":"https://doi.org/10.2139/ssrn.3892999","url":null,"abstract":"The aim of this paper is to propose a portfolio selection methodology capable to take into account asset tail co-movements as additional constraints in Markowitz model. We apply the methodology to the observed time series of the 10 largest crypto assets, in terms of market capitalization, over the period 20 September 2017–31 December 2020 (1200 daily observations). The results indicate that the portfolios selected considering tail risk are more diversified and, therefore, more resilient to financial shocks.","PeriodicalId":126646,"journal":{"name":"PSN: Exchange Rates & Currency (International) (Topic)","volume":"33 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2021-07-25","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"128094916","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
The structure and operation of blockchains are dynamic, which means that mechanisms must exist for implementing changes. The New Institutional Economics (NIE), with its emphasis on how rules govern the performance of any complex organization or network, provides an especially useful framework to consider governance of blockchains. We consider how NIE has been applied to blockchain and future applications. Our analysis is divided into consideration of blockchain as an institutional technology, blockchain as a polycentric enterprise, and the ways to empirically research blockchain. The Institutional Analysis and Design (IAD) framework developed by Elinor Ostrom is particularly useful to develop an empirical research agenda for comparing the institutional features of blockchains and, ultimately, to comparing their performance.
{"title":"Economic Perspectives on the Governance of Blockchains","authors":"I. Murtazashvili, Martin Weiss","doi":"10.2139/ssrn.3914362","DOIUrl":"https://doi.org/10.2139/ssrn.3914362","url":null,"abstract":"The structure and operation of blockchains are dynamic, which means that mechanisms must exist for implementing changes. The New Institutional Economics (NIE), with its emphasis on how rules govern the performance of any complex organization or network, provides an especially useful framework to consider governance of blockchains. We consider how NIE has been applied to blockchain and future applications. Our analysis is divided into consideration of blockchain as an institutional technology, blockchain as a polycentric enterprise, and the ways to empirically research blockchain. The Institutional Analysis and Design (IAD) framework developed by Elinor Ostrom is particularly useful to develop an empirical research agenda for comparing the institutional features of blockchains and, ultimately, to comparing their performance.","PeriodicalId":126646,"journal":{"name":"PSN: Exchange Rates & Currency (International) (Topic)","volume":"18 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2021-07-07","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"114722058","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
In this paper, we study the mechanisms that govern price stability of MakerDAO's DAI token, the first decentralized stablecoin. DAI works through a set of autonomous smart contracts, in which users deposit cryptocurrency collateral, typically Ethereum, and borrow a fraction of their positions as DAI tokens. Using data on the universe of collateralized debt positions, we show that DAI price covaries negatively with returns to risky collateral. The peg-price volatility is related to collateral risk, while the stability rate has little ability to stabilize the coin. The introduction of safe collateral types has led to an increase in peg stability.
{"title":"Decentralized Stablecoins and Collateral Risk","authors":"R. Kozhan, Ganesh Viswanath-Natraj","doi":"10.2139/ssrn.3866975","DOIUrl":"https://doi.org/10.2139/ssrn.3866975","url":null,"abstract":"In this paper, we study the mechanisms that govern price stability of MakerDAO's DAI token, the first decentralized stablecoin. DAI works through a set of autonomous smart contracts, in which users deposit cryptocurrency collateral, typically Ethereum, and borrow a fraction of their positions as DAI tokens. Using data on the universe of collateralized debt positions, we show that DAI price covaries negatively with returns to risky collateral. The peg-price volatility is related to collateral risk, while the stability rate has little ability to stabilize the coin. The introduction of safe collateral types has led to an increase in peg stability.","PeriodicalId":126646,"journal":{"name":"PSN: Exchange Rates & Currency (International) (Topic)","volume":"89 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2021-06-17","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"123676666","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
I develop an accounting framework that attributes FX movements in incomplete markets to SDF and non-SDF shocks. This framework allows a general characterization of FX dynamics and SDF-FX pass-through. Under this framework, Triangular arbitrage imposes a tight relation between SDF correlations and FX correlations, which produces counterfactual implications if the SDF-FX pass-through is symmetric across countries. This result suggests that asymmetry is an inherent feature of equilibrium FX dynamics in incomplete markets, which generates novel implications about international spill-over, Backus-Smith coefficients, and FX comovements.
{"title":"Exchange Rate Accounting in a Multi-Currency World","authors":"Zhengyang Jiang","doi":"10.2139/ssrn.3861805","DOIUrl":"https://doi.org/10.2139/ssrn.3861805","url":null,"abstract":"I develop an accounting framework that attributes FX movements in incomplete markets to SDF and non-SDF shocks. This framework allows a general characterization of FX dynamics and SDF-FX pass-through. Under this framework, Triangular arbitrage imposes a tight relation between SDF correlations and FX correlations, which produces counterfactual implications if the SDF-FX pass-through is symmetric across countries. This result suggests that asymmetry is an inherent feature of equilibrium FX dynamics in incomplete markets, which generates novel implications about international spill-over, Backus-Smith coefficients, and FX comovements.","PeriodicalId":126646,"journal":{"name":"PSN: Exchange Rates & Currency (International) (Topic)","volume":"63 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2021-06-07","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"122503486","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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