Abstract
In this study, the Log-Periodic Power Law Singularity (LPPLS) model is adopted for real-time identification and monitoring of Bitcoin bubbles and crashes using different time scale data, and the modified Lagrange regularization method is proposed to alleviate the impact of potential LPPLS model over-fitting to better estimate bubble start time and market regime change. The goal here is to determine the nature of the bubbles and crashes (i.e., whether they are endogenous due to their own price evolution or exogenous due to external market and/or policy influences). A systematic market event analysis is performed and correlated to the Bitcoin bubbles detected. Based on the daily LPPLS confidence indictor from 1 December 2019 to 24 June 2021, this analysis has disclosed that the Bitcoin boom from November 2020 to mid-January 2021 is an endogenous bubble, stemming from the self-reinforcement of cooperative herding and imitative behaviors of market players, while the price spike from mid-January 2021 to mid-April 2021 is likely an exogenous bubble driven by extrinsic events including a series of large-scale acquisitions and adoptions by well-known institutions such as Visa and Tesla. Finally, the utilities of multi-resolution LPPLS analysis in revealing both short-term changes and long-term states have also been demonstrated in this study.
Highlights
Accepted: 19 November 2021In recent years, the cryptocurrency market has seen explosive growth and roller coaster volatility, attracting widespread attention from the investment community and the academic community
Since the calculation of the Log-Periodic Power Law Singularity (LPPLS) confidence indicator is only based on the previous data of the specified endpoint t2, independent to price trajectory after t2, the LPPLS confidence indicator provides a real-time diagnosis of the bubble status when the t2 is interpreted as the fictitious “present”
The extreme volatility and rapid transition between Bitcoin price skyro this study, we have adopted the model great to explore the underlying mechanism of the bubbles ing and plummeting have brought challenges to predict the Bitcoin recent Bitcoin bubbles and crashes using a multi-resolution time-scale approach
Summary
The cryptocurrency market has seen explosive growth and roller coaster volatility, attracting widespread attention from the investment community and the academic community. Stats 2021, 4 baseline of $826.365 million on July 6, 2013, the total market value of the cryptocurrencies has increased by about 3000 times in less than 8 years (Figure 1). 1. Evolution of the market capitalization of cryptocurrencies and Bitcoin as Bitcoin well as Bitcoin from 29ratio. Evolution oftotal the total market capitalization of cryptocurrencies and as wellratio as Bitcoin to 24. 14, 2021, acket capitalization) ratio has been fluctuating over time, with remarkable changes during counting for 53.95% of the total cryptocurrency market value. The Bitcoin Ratio reached a peak of 96.55% on capitalization) ratio has been fluctuating over time, with remarkable changes during bub November 2013, and fell to 32.14% on 1 January 2018.
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