The study of bubbles in bitcoin behavior

• Published in: Banks and bank systems Vol. 14; no. 4; pp. 133 - 142
• Main Authors: Adnan Fendi, Usama, Tahtamouni, Asem, Jalghoum, Yaser, Jamal Mohammad, Suleiman
• Format: Journal Article
• Language: English
• Published: Sumy Business Perspectives Ltd 2019; LLC "CPC "Business Perspectives
• Subjects: bitcoin; bubble; conventional currencies; cryptocurrencies; Currency; Digital currencies; Time series
• ISSN: 1816-7403; 1991-7074
• DOI: 10.21511/bbs.14(4).2019.13

Bitcoin is an online communication system that facilitates the use of virtual currency, including electronic payments. This paper aims at analyzing the behavior of Bitcoin returns as a proposal for future currencies while making a comparison between Bitcoin and other conventional currencies. This paper uses quantitative approach to analyze the time series of Bitcoin and that of other conventional currencies during the period 2010–2018. It uses 1) a descriptive statistics for the weekly returns for Bitcoin which includes the mean, standard deviation, maximum value, minimum value, skewness, kurtosis, and Jarque-Bera normal distribution test statistics, and 2) duration dependence test on Bitcoin weekly returns by extracting the weekly returns for the Bitcoin that behave in irregular way of the general Bitcoin return level through autocorrelation regression, and taking the residuals for this regression as a time series for irregular returns.This paper has confirmed no empirical evidence for the existence of a speculative bubble in the Bitcoin values and returns. In addressing the question of whether Bitcoin can act as a reliable substitute for conventional currencies, the returns based analysis shows a huge difference between the behavior of Bitcoin returns from conventional currency returns when comparing both aspects of level and stability. The paper concluded that bitcoin is more an investment than a currency. This paper represents a significant contribution in the path of financial economics and financial risk management, and represents a contribution to the stability of the financial system around the world and mitigating financial crises.