The crypto currency Bitcoin has often been criticized for having a price that is closely linked with speculation. Critics claim Bitcoin lacks the necessary fundamental factors that would explain its tremendous rise in price, from $5 per Bitcoin in 2011, to $660 today.
Ladislav Kristoufek, from Charles University, recently conducted a study that explained the accuracy of the claims of both Bitcoin supporters and detractors, regarding what influenced its price.
Kristoufek found that the thorough transparency of Bitcoin transactions and the publication of the total number of Bitcoins in circulation on a daily basis, made the data much easier to follow than conventional currencies, such as the United States dollar.
“It is completely unrealistic to know the total amount of the US dollars in the worldwide economy on a daily basis. However, Bitcoin provides such information on a daily basis, publicly and freely,” explained Kristoufek.
Kristoufek used a method called “wavelet coherence analysis,” where he looked for correlations between the price of Bitcoin and the price of other currencies.
Kristoufek’s study resulted in many answers, some of which, not everyone wanted to hear. He did not find many signs showing a relationship between Bitcoin and gold price movements, which brought on a great sense of doubt among those who believe Bitcoin can act as a “safe haven” during times of economic strain.
“We found no signs of Bitcoin being a safe haven,” concluded Kristoufek. “Apart from the Cypriot crisis, there are no longer-term time intervals where the correlations are both statistically signiﬁcant and reliable.”
Kristoufek also found that while there has been a great deal of speculation concerning the rising price of Bitcoin, there are fundamental factors that explain the increase.
A few fundamental factors discovered in Kristoufek’s study, were Bitcoin’s usage in trade, money supply and price level. As City A.M. writer Guy Bentley explained, “As the price of Bitcoin rises, incentives are created for users to become miners and gain a profit, impacting the price. The areas where speculation has been the principle driver of Bitcoin’s price are during episodes of explosive prices. The interest in the crypto currency drives the price up and during steep declines pushes it down.”