Is Bitcoin a Commodity? On price jumps, demand shocks, and certainty of supply

Marc Gronwald

doi:10.1016/j.jimonfin.2019.06.006

Is Bitcoin a Commodity? On price jumps, demand shocks, and certainty of supply

Marc Gronwald^*

^*Corresponding author for this work

University of Aberdeen

Research output: Contribution to journal › Article › peer-review

100 Citations (Scopus)

Abstract

This paper discusses how similar Bitcoin is to a commodity. The application of a number of both linear and non-linear GARCH models indicates that the role of extreme price movements is particularly pronounced. GARCH models with student-t innovations as well as combined jump-GARCH models are among the models with the best fit. The role of large movements is found to be stronger in the Bitcoin market than in the markets for crude oil and gold. As Bitcoin shares with these exhaustible resource commodities characteristics such as the fixed supply, the analysis of Bitcoin prices can generally learn from the analysis of exhaustible resource commodities. However, whereas the short-run supply of gold and oil are uncertain, there are no uncertainties on the Bitcoin supply-side. Thus, the observed movements of Bitcoin prices can be interpreted as results of Bitcoin demand shocks.

Original language	English
Pages (from-to)	86-92
Number of pages	7
Journal	Journal of International Money and Finance
Volume	97
DOIs	https://doi.org/10.1016/j.jimonfin.2019.06.006
Publication status	Published - Oct 2019
Externally published	Yes

Keywords

Bitcoin demand shocks
Bitcoins
GARCH
Price jumps
Security of supply

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10.1016/j.jimonfin.2019.06.006

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abstract = "This paper discusses how similar Bitcoin is to a commodity. The application of a number of both linear and non-linear GARCH models indicates that the role of extreme price movements is particularly pronounced. GARCH models with student-t innovations as well as combined jump-GARCH models are among the models with the best fit. The role of large movements is found to be stronger in the Bitcoin market than in the markets for crude oil and gold. As Bitcoin shares with these exhaustible resource commodities characteristics such as the fixed supply, the analysis of Bitcoin prices can generally learn from the analysis of exhaustible resource commodities. However, whereas the short-run supply of gold and oil are uncertain, there are no uncertainties on the Bitcoin supply-side. Thus, the observed movements of Bitcoin prices can be interpreted as results of Bitcoin demand shocks.",

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AB - This paper discusses how similar Bitcoin is to a commodity. The application of a number of both linear and non-linear GARCH models indicates that the role of extreme price movements is particularly pronounced. GARCH models with student-t innovations as well as combined jump-GARCH models are among the models with the best fit. The role of large movements is found to be stronger in the Bitcoin market than in the markets for crude oil and gold. As Bitcoin shares with these exhaustible resource commodities characteristics such as the fixed supply, the analysis of Bitcoin prices can generally learn from the analysis of exhaustible resource commodities. However, whereas the short-run supply of gold and oil are uncertain, there are no uncertainties on the Bitcoin supply-side. Thus, the observed movements of Bitcoin prices can be interpreted as results of Bitcoin demand shocks.

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Is Bitcoin a Commodity? On price jumps, demand shocks, and certainty of supply

Abstract

Keywords

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