Journal of Investment Strategies

The price of Bitcoin: GARCH evidence from high-frequency data

Pavel Ciaian, d’Artis Kancs and Miroslava Rajcaniova

  • Structural GARCH model of the Bitcoin price and return volatility
  • High-frequency hourly data for Bitcoin
  • Transaction demand and speculative demand increase Bitcoin price
  • Bitcoin price responds negatively to the Bitcoin velocity

This is the first paper that estimates the price determinants of Bitcoin in a generalized autoregressive conditional heteroscedasticity (GARCH) framework using high-frequency data. Derived from a theoretical model, we structurally estimate Bitcoin transaction demand and speculative demand models using hourly data for 2013–21. In line with the theoretical hypothesis, our empirical results confirm that both the Bitcoin transaction demand and speculative demand have a statistically significant impact on the Bitcoin price formation. The Bitcoin price responds negatively to the Bitcoin velocity, whereas positive shocks to the aggregate Bitcoin stock, interest rate and size of the Bitcoin economy exercise an upward pressure on the Bitcoin price.

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