Journal
FINANCE RESEARCH LETTERS
Volume 46, Issue -, Pages -Publisher
ACADEMIC PRESS INC ELSEVIER SCIENCE
DOI: 10.1016/j.frl.2021.102352
Keywords
Bitcoin; Cryptocurrency; Crash risk; Synchronicity; Upside volatility
Categories
Funding
- Chinese National Social Science Fund Key Project [16AJY026]
- Humanities and Social Sciences Foundation of the Ministry of Education of China [17YJC630177]
- Wealth Management Project of Shandong Technology and Business University [2019ZBKY083]
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The evaluation of Bitcoin's fundamental value is challenging due to the absence of an underlying company or cashflow. This paper highlights the importance of investors' behavior in asset pricing, particularly for a speculative instrument like Bitcoin. The study reveals that high upside volatility of Bitcoin, as indicated by Ethereum synchronicity, significantly increases Bitcoin crash risk.
The fundamental value of Bitcoin is difficult to evaluate because there is no underlying company or cashflow. Extant literature documented various macro-economic factors and technical factors to price Bitcoin. However, for a highly speculative instrument, investors' behavior plays an important role in asset pricing. This paper incorporates Bitcoin Ethereum synchronicity conditional on upside volatility of Bitcoin as a proxy for the fear of high Bitcoin prices. Empirical results reveal that when upside volatility is high, Ethereum synchronicity exerts a significant positive influence on Bitcoin crash risk.
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