Behavior Of Bitcoin Trading Essay Example

Introduction

Abstract

Bitcoin ‘s (BTC) reputation is rising as it is recognized as legal money in more and more territories and countries. With an increasing demand for better strategies for trading Bitcoin, studying the behavior of Bitcoin trading can help investors, as well as traders, figure out a better strategy for maximizing profit with this cryptocurrency. Although Bitcoin trading mostly occurs on weekdays, there is also a high demand for weekend trading, demonstrating high retail participation rates. Thus, varying demands for weekend trading across different areas around the world may lead to predictions that trading patterns are more dependent on the location of trade than the location where the asset is traded. In fact, in the Bitcoin market, there has already been substantial trading on Saturdays and Sundays. Therefore, we also want to test if Bitcoin prices depreciate during local trading hours but appreciate outside of these hours. The research will use data on transactions from trustworthy Bitcoin trading platforms as well as data providers to figure out whether the local time is the main factor in deciding the trading time, which will provide great insight for Bitcoin traders for a better understanding of the market.

Literature Review

The paper focuses on the time of trading Bitcoin as well as figuring out whether the local time is one of the main factors in the timing of trades. By examining commonality in returns and volumes based on 4 BTC currency pairs, which most of the trading is likely to be within one time zone, GBP/BTC (Coinbase Pro), JPY/BTC (Bitflyer), KRW/BTC (Korbit), and ZAR/BTC (Luno), the research points out that volume of exchanges is higher during local working hours. Thus, indicating the view of trading patterns is dependent on the location of trade more than the location where the asset is traded.

Bitcoin Market

The Establishment of Bitcoin Market

Bitcoin is one of the most innovative inventions in human history, first created by a Japanese man, Satoshi Nakamot, based on blockchain technology. The creation of Bitcoin is the solution for the counterparty to spend twice more without being detected immediately. Bitcoin trading participates in the ultimate process by adding one more block to the block of information of the transaction (between senders and recipients). Moreover, there is also compensation for the miners who spend time, money, and hardware on the competition of solving a “mathematical algorithm” that enables new blocks to be linked to the existing chain of information on the previous transactions of BTCs.

After its first public use in 2008, Bitcoin has become the first and most widely used cryptocurrency, optimizing the process of money transfer with its utility and security. Nowadays, with increasing demand for Bitcoin as a reliable means of transferring money, the Bitcoin market is growing in popularity. Many investors put Bitcoin in their own portfolios, serving as fiat money. Ten years after its creation, the capitalization of the Bitcoin market has marked a significant growth from zero to more than 100 billion USD (October 2018). Along with enormous capitalization, the Bitcoin trading market also operates 24 hours a day with a volume of more than 3 billion USD.

A unique aspect of the Bitcoin market is high levels of participation from individuals, without interference or manipulation from financial institutions or governments. Thus, Bitcoin does not have any home market, which leads to high simplicity in transactions as well as low storage requirement and low transfer cost.

Prices and Returns of Bitcoin in Local Working Hours

The Law of Bitcoin trading is based on arbitrage rule, which ensures that the prices of the Bitcoin be the same worldwide with the “synchronous clock time”, post-exchange rates. However, in the real trading market, there are several cases that show discrepancies between local and global price levels, such as the Korean market in February 2018. In order to trade Bitcoins, traders have to compensate for an average premium of 4.73% (Choi, Lehar, & Stauffer, 2018). In a report in 2018, Makarov and Schoar also showed constant large deviations when the large Bitcoin price was appreciated. For a better understanding of these assumptions, the hypothesis below will be tested to see if the location of Bitcoin transactions is the main factor of changes in Bitcoin prices across exchanges.

Firstly, we want to figure out similarity of responding to information across the exchanges based on the correlation of daily returns among possible currency pair from the four chosen pair during January – May 2018 period (with p < 0.001, which are May 2018 period (with p < 0.001, which are:

We can see that all possible combinations of currency pair have significant correlation coefficient, which are greater than 0.89. The strong relationship among these variables shows that there is a commonality of Bitcoin prices across exchanges.

Secondly, we also want to test the liquidity of the Bitcoin market using data from daily high and low prices of Bitcoin during January 2018.

Panel A shows the mean and standard deviation of 30 days spreads of each currency pair. After that, in panel B, we make tests of equality of means daily spreads for Bitcoin for each currency pair and showing the p-value of each possible combinations of currency pair. In panel C, there is a comparison among the selected 30 matching equities and the GBP/BTC as well as JPY/BTC. In this panel, we can see that GBP/BTC and its matching values have the following means of 0.0274 and 0.0064, and JPY/BTC and its matching values have the means of 0.0235 and 0.0051. These statistics show that both BTC currency pair has a larger spread than its own matching equities, which does not support our hypothesis of liquidity of Bitcoin market. On the other hand, in panel D, we apply another method of measurement called Amihud to make a comparison of two above BTC currency pairs with its own matching equities. In this case, we find that both means of BTC currency pair are much smaller than its corresponding matching values’ means. This result does support the hypothesis of liquidity of the Bitcoin market. Ultimately, we want to check for our predictions of Bitcoin in weekdays: Bitcoin prices depreciate during local trading hours but appreciate outside of these hours.

In this test, we defined the working hours are from 8 a.m to 5 p.m (10 hours), while the remaining hours will be the nonworking hours (14 hours). Based on the data during January – May 2018 period, this table shows us the mean and standard deviation of daily returns for working and non – working hours of each BTC currency pairs. From these results, we apply the t-test to test the equality in mean returns for each BTC currency pair in two chosen periods. With the results, we cannot deny the null hypothesis of means of returns’ equality. Therefore, we cannot find evidence to conclude price depreciation during local trading hours.

Stop Using Bitcoin And Just Stick With Traditional Banking

Bitcoins are a cyber-form of currency which is said to be the future of the currency in the world. This form of currency is relatively new and is very unstable due to many factors. Bitcoins were created in 2009 by a group of people that are still unknown. This brings a lot of questions to the people’s mind that plan on investing in a form of currency like this in the future. One thing that never failed anyone is traditional banking which has been working for hundreds of years. People strangely believe that Bitcoins are the 21st century’s amazing breakthrough, but they are highly unstable, so we should stop accepting them, and just stick with the regular form of banking that we are accustomed to.

Even though Bitcoin is a bad form of currency to use many people think otherwise, and choose to use it over the traditional banking system. Bitcoin is a type of market that is open to anybody and does not require some kind of special certification. (Coinbrief is an open source website for digital news. It provides cryptocurrency tools mining calculators, tutorials, and more.) “The code that the Bitcoin network is built upon is open source, so anyone with the ability to read the code is free to do so.” This is the most important reason that a lot of people love bitcoin because they’re not hiding anything from the public like a regular stock market would work. Every kind of information is available on bitcoin, and the codes are what run the system. If an individual knows how the codes run then he has figured out how the system will run in the future. This is in some people’s eyes a very good thing because anybody that is investing a sum of money wants to plan ahead into the future so he or she does not lose their investment.

Even though bitcoin has some positive facts most of it is bad, and it has a lot of fraud in the system, unlike the banking system. Bitcoin has a system where they keep their key password information so they can make transactions. (Coinbrief is an open source website for digital news. It provides cryptocurrency tools mining calculators, tutorials, and more.) “Many online wallets are easy to use, but require trusting a 3rd party to hold your funds, and that 3rd party could be corrupted or hacked.” That is why bitcoins are very dangerous, which makes online banking safer because if you stop using your account, and your computer goes to sleep it automatically logs you out in 15 minutes. An importation fact to take into consideration is that Bitcoin is a fairly new form of online currency, and is still finding ways to grow and be safer. While the banking system has already been established a long time ago, and peoples online information is protected 24/7.

Another great fact about Bitcoin is no one controls it which makes the banking system a lot more appropriate for everyday users. (Acheson, Noelle teaches blockchain and cryptocurrencies at business schools in Spain, where she lives.) ”No single institution controls the bitcoin network.” That means that bitcoin can never be deleted by a single person or government. The banking system can be changed if the government sees that there is an issue in the system. Also, what makes this even more frightening is that no one even has control over bitcoin. This is where the banking system yet again proves that it is more stable because the government regulates the banks, and has large amounts of money in them. Lastly, a system that is not run by anyone can crash in any minute unlike the banks which is run by the government, and only will crash if the government fails.

The third interesting fact about Bitcoin is that they are highly unstable, unlike the Banking system which is monitored by groups of highly educated individuals in the government. Bitcoin has this weird tendency to change its value depending on what is happening in the marketplace at any given time. The money in the bank accounts on the other hand only change depending on the value of the currency, and the value of the interest paid. That is why the Banking system is a lot more stable because money changes depending on the inflation caused by the government, and this does not happen all of a sudden. (Murray, Christopher is the managing editor of Money Under 30.) “No government or central bank controls the currency supply.” This proves that Bitcoins are highly unstable because they are controlled by no one, and by the value of real money which comes from the Banks anyway.

The limited supply of bitcoin is the fourth fact that makes people want to turn their back on it, and just continue using traditional banking. (Acheson, Noelle teaches blockchain and cryptocurrencies at business schools in Spain, where she lives.)  “A small number of new bitcoins trickle out every hour, and will continue to do so at a diminishing rate until a maximum of 21 million has been reached.” That means at the rate that bitcoin is growing and having more users it will reach its pike in a matter of 2 decades. When it reaches its pike, the system can’t be used because all the bitcoins are used up. That is why yet again people should stop using bitcoin, and use traditional banking. The money in the bank will only cease to exist if the government stops printing it, and which is very unlikely to happen. For the government to stop printing money it has to be overthrown by another government that will print its own money.

Lastly, using Bitcoin currency is a more difficult form of currency to use than the money that is stored in local Banks around town. When it comes to using hard earned money people generally want an easier solution of accessing it. That is why when it comes to using money being in the banking system is an easier way to go. All you have to do is go to an atm machine or a bank, and withdraw your money from the savings account or the checking’s. (Jaffe, Justin is a co-founder of Rapport, a sustainability software company.)” You can use bitcoin to buy things from more than 100,000 merchants, though still few major ones.” This shows that Bitcoin has not grown to a point where it can be accepted everywhere like a debit card. This form of currency is basically run by hackers and individuals that try to get over on people. Also to use a Bitcoin everywhere like a debit card from a bank account an individual most convert the currency into the money that is in his region. Even then he has to use a bank account to store his money there.

Many people get their heads wrapped around new things that are coming out like Bitcoin which were supposed to be the new breakthrough to get out of the old form of currency into the new. Here is why they are not a breakthrough but a scam, they are not regulated by no one, and cannot be deleted by a single or a group of individuals. They are also very hard to use in everyday life. An individual that uses this form of currency has a high possibility of losing all of his investments. In order to log into Bitcoin, you need a key code if you lose that you lose your money forever. That is why if something is not broken don’t fix it a traditional Banking system has been working for hundreds of years. Banks will never stop working unless the government pulls all of its money out or the government’s system is overthrown. The best advice for anyone is to stick to something that has always been working not like a new and unstable form of currency.

Does Social Media Influence The Prediction Of Bitcoin Prices

The purpose of this paper is to analyze if social media platform such as twitter has an influence on Bitcoin related tweets which would indicate a price change. Bitcoin is such a prevalent topic throughout Social Media especially, Twitter which is such a reliable source to collect data on cryptocurrencies and explore if there is a relationship between tweets and returns. I would conduct research by collecting Bitcoin daily returns over the past five years and daily search all tweets and hashtags on twitter relating to bitcoin. Based on that data I would analyze if there is a relationship between twitter and Bitcoin prices. I would try to understand the impact of the number of daily tweets and returns can provide a purchasing and selling advantage to a cryptocurrency user or a trader.

In today’s economy, the cryptocurrency market has been growing steadily since 2008 to present day. While there are over 1,300 cryptocurrencies existing, one of the most well-known and influential cryptocurrencies that had made an impact in today’s economy is Bitcoin (BTC). Cryptocurrency is a type of digital currency that is in the form of a virtual coin. The virtual coin acts like a commodity such as gold or silver. However, cryptocurrency does not have any intrinsic value unlike gold. There is not a fundamental coin that exists for individuals to be able to hold in their hand or put in their wallet.

Bitcoin was the first cryptocurrency that was developed in 2009. The idea for Bitcoin originated in 2008 with a published paper under the pseudonym, Satoshi Nakamoto. Satoshi’s concept of developing a peer-to-peer electronic cash system that would allow individuals to make online payments directly from one party to another without going through a third party. With that vision and goal for a decentralized system, Satoshi created cryptocurrency. Satoshi’s idea for Bitcoin started in 2008, and this digital asset was made available to the public in 2009.

Bitcoin is a well-recognized cryptocurrency, and it has a supply cap of 21 million coins. With a set amount of Bitcoin (BTC), obtaining one full or partial share of a Bitcoin became competitive. Cryptocurrency operates in a decentralized exchange system, which means that funds can be transferred between two parties without going through a central financial institution. On the other hand, when transactions occur in a centralized system, the financial institution can charge the individual a service fee to transfer funds to another party. Also, the receiving end can charge individuals with a service fee and conversion fee if individuals are transferring funds internationally. Transactions involving cryptocurrency do not require verification of the individual’s identity unlike financial institutions. All transactions are traced by computers that have a universal ledger. The universal ledger is accessible to everyone participating in the digital exchange.

Satoshi Nakamoto published a paper titled “Bitcoin: A Peer-to-Peer Electronic Cash System” which he described a peer-to-peer payment system using electronic cash also known as cryptocurrencies which could be sent to and from one party to another without the use of a third party to authorize the transaction. This revolution is called blockchain. Blockchain is which a shared ledger on the peer-to-peer network where all transactions are verified by the network so they cannot be forged [1]. Blockchain technology provides security, privacy, and a distributed ledger which makes them applicable for many applications, such as healthcare, distributing storage systems, much, much more. [2]. Wide variety of applications of blockchain has led to more blockchains and cryptocurrencies. Cryptocurrencies come hand to hand in blockchain because cryptocurrency is created and stored electronically in the blockchain. Using special techniques to control the making of monetary funds and verify the transfer of its funds. [3] As use of blockchains increases so too will the use of cryptocurrencies.

Twitter first launched in July of 2006 and since then it’s been growing. Twitter is also known as microblogging. Microblogging is smaller and more frequent updates than blogging. Twitter allows users to post messages publicly which is referred to as “tweets” with a maximum length 280 characters recently changed in November of 2017. Twitter users can add “hashtags” to a tweet, which is the “#” symbol followed by several characters. The hashtag is used to identify the topic or theme of a tweet and to make them searchable or whatever it is the user wishes to talk about.

In 2018, 500 million tweets are sent each day that’s equivalent to 5,787 tweets every second. Over the years twitter has become one of those social media sites where news is quickly spread, and things become viral just in seconds Twitter is used as a news source influencing purchase decision for both sellers and buyer by informing users of the currency and its growing popularity. According to Twitter statics 71% of Twitter users are using their account for the most up to date and latest news. Twitter is also the number one platform for government leaders. 40% of users say they’ve made a purchase because of an influencer’s tweet. Twitter is one social media platform which ranges from kids to adults, celebrities to politicians and most importantly a place where you’re able to talk about anything and freely speak your opinion on almost anything without any judgement as such, like everything else, opinions and information about anything a is available on Twitter. Bitcoin is such a prevalent topic throughout Social Media especially, Twitter which is such a reliable source to collect data on cryptocurrencies and explore if there is a relationship between tweets and returns.

References

  1. Nakamoto, S.: Bitcoin: A peer-to-peer electronic cash system. In: Cryptography Mailing list at https://metzdowd.com
  2. Miraz, M.H., Ali, M.: Applications of blockchain technology beyond cryptocurrency. CoRR abs/1801.03528
  3. https://www.pwc.com/us/en/industries/financial-services/fintech/bitcoin-blockchain-cryptocurrency.htm

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