Abstract
We offer a general equilibrium analysis of cryptocurrency pricing. The fundamental value of the cryptocurrency is its stream of net transactional benefits, which depend on its future prices. This implies that, in addition to fundamentals, equilibrium prices reflect sunspots. This in turn implies multiple equilibria and extrinsic volatility, that is, cryptocurrency prices fluctuate even when fundamentals are constant. To match our model to the data, we construct indices measuring the net transactional benefits of Bitcoin. In our calibration, part of the variations in Bitcoin returns reflects changes in net transactional benefits, but a larger share reflects extrinsic volatility.
| Original language | English |
|---|---|
| Pages (from-to) | 967-1014 |
| Number of pages | 48 |
| Journal | Journal of Finance |
| Volume | 78 |
| Issue number | 2 |
| Early online date | 19 Jan 2023 |
| DOIs | |
| Publication status | Published - Apr 2023 |
Bibliographical note
Publisher Copyright:© 2023 the American Finance Association.
Funding
| Funders | Funder number |
|---|---|
| Horizon 2020 Framework Programme | 882375 |