EXPLORING THE RISE AND FALL OF BITCOIN PRICES: TO WHAT EXTENT WAS OPTIMISTIC HERDING BEHAVIOUR IN BITCOIN MARKETS DISRUPTED BY THE INTRODUCTION OF BITCOIN FUTURES CONTRACTS?

Open Access
Author:
Rajasagi, Manas Varma
Area of Honors:
Economics
Degree:
Bachelor of Science
Document Type:
Thesis
Thesis Supervisors:
  • Karl Edward Schurter, Thesis Supervisor
  • Russell Paul Chuderewicz, Honors Advisor
Keywords:
  • Bitcoin
  • Cryptocurrency
  • Herding
  • Behavioural Economics
  • Futures Contracts
Abstract:
Bitcoin is a novel technology and global economies are in the very early stages of incorporating cryptocurrencies into their existing economic systems. Given the limited understanding of Bitcoin from a policy and economic perspective, this paper studies the extent to which futures trading accentuated Bitcoin’s price collapse. This analysis is done through the lens of behavioral economics, specifically herding, which is the propensity of investors to disregard their private information and emulate the decisions of other investors. A key finding from this analysis reveals that herding was present following the introduction of Bitcoin futures contracts when the market was experiencing extreme negative daily returns. This paper offers economic context for policy makers seeking to better understand the effects of derivative markets on Bitcoin’s prices by way of the behavioral characteristics of its participants.