What determines bitcoin exchange prices? A network VAR approach

We aim to understand the dynamics of cryptocurrency prices and, specifically, how price information is transmitted between different crypto market exchanges, and between crypto markets and traditional ones. To this aim, we propose an extended Vector Autoregressive model, aimed at explaining the evolution of bitcoin prices. The extension is based on network models, which improve over pure autoregressive models, as they introduce a contemporaneous contagion component, that describes contagion effects between prices. Our empirical findings show that the proposed model is able to well describe the correlation structure between bitcoin prices in different exchange markets, which appear rather strong, whereas the correlation of bitcoin prices with traditional assets is low. The model is also able to improve bitcoin price predictions, with respect to a simpler autoregressive model.