This academic paper analyses the relationship between the market price of selected Cryptocurrencies, its traded volume and circulating supply. Various quantitative methods of statistics are applied in order to evaluate any relation between all three parameters.
In rapidly changing times of today, the financial market is being shaped in all its sectors driven by existing megatrends such as Digitization. Technological improvements and virtual connectivity are yet the latest advancements which push forward the disruption of the financial sector. One recent phenomenon are Cryptocurrencies, virtual tokens that are stored and transferred digitally on a Distributed Ledger (DLT). A DLT-network represents a peer-to-peer environment which enables individuals to operate financial transactions that are operated and recorded in a decentralized and encrypted manner. Every transfer is then stored in the virtual Blockchain. Unlike established mechanisms in world economy, Cryptocurrencies aim to establish a new environment which performs independently, securely distributed and detached from regulations by authorities or governments. In contrast to physical currencies, Cryptocurrencies are not backed by a Central Bank or have an underlying asset or security that builds the fundament for the virtual currency. It is to say that Cryptocurrencies can yet not be seen as a universal medium of payment since they fundamentally fail to meet three requirements of the Federal Reserve Banks in order be an accepted currency. (cf. HSBC, 2018)
Table of Contents
1 Introduction
2 Discussion of Relevant Literature and Economic Theory
3 Data Description
4 Empirical Results
5 Conclusion
Research Objectives and Key Topics
This paper aims to investigate the determinants of cryptocurrency market prices by analyzing the relationship between price movements and two specific parameters: the 24-hour traded volume and the circulating supply of the 100 largest cryptocurrencies.
- Application of Log-Log Regression models to identify price drivers.
- Evaluation of the impact of 24-hour traded volume on market pricing.
- Analysis of the correlation between circulating supply and cryptocurrency valuations.
- Assessment of statistical significance and model fit for cryptocurrency price prediction.
- Testing of economic theories regarding supply and demand within the decentralized finance sector.
Excerpt from the Book
1 Introduction
In rapidly changing times of today, the financial market is being shaped in all its sectors driven by existing megatrends such as Digitization. Technological improvements and virtual connectivity are yet the latest advancements which push forward the disruption of the financial sector. One recent phenomenon are Cryptocurrencies, virtual tokens that are stored and transferred digitally on a Distributed Ledger (DLT). A DLT-network represents a peer-to-peer environment which enables individuals to operate financial transactions that are operated and recorded in a decentralized and encrypted manner. Every transfer is then stored in the virtual Blockchain. Unlike established mechanisms in world economy, Cryptocurrencies aim to establish a new environment which performs independently, securely distributed and detached from regulations by authorities or governments.
In contrast to physical currencies, Cryptocurrencies are not backed by a Central Bank or have an underlying asset or security that builds the fundament for the virtual currency. It is to say that Cryptocurrencies can yet not be seen as a universal medium of payment since they fundamentally fail to meet three requirements of the Federal Reserve Banks in order be an accepted currency. (cf. HSBC, 2018)
Even though Cryptocurrencies serve as a means of payment and have a money-like function, they do not fulfill the prerequisite of store of value that is required per definition. As virtual currencies witnessed a sharp increase in the market volume and the appearance of new coin currencies on the marketplace over the past years, the present financial system still remains unsure on how to valuate and regulate Cryptocurrencies. (cf. Brainard, 2018)
Chapter Summary
1 Introduction: Provides an overview of the rise of cryptocurrencies, their status as a disruptive financial phenomenon, and the research objective of analyzing price drivers.
2 Discussion of Relevant Literature and Economic Theory: Reviews existing academic studies on market growth, historical trends, and economic theories related to supply and demand in the cryptocurrency space.
3 Data Description: Details the methodology and dataset selection, including the use of log-log transformation for the 100 largest cryptocurrencies by market capitalization.
4 Empirical Results: Presents the findings of the three regression models and discusses the statistical significance of traded volume and circulating supply on price.
5 Conclusion: Summarizes the key findings, confirming that trading volume and circulating supply are significant predictors of price, and suggests directions for future research.
Keywords
Cryptocurrency, Market Price, Traded Volume, Circulating Supply, Log-Log Regression, Distributed Ledger, Blockchain, Financial Markets, Decentralization, Price Drivers, Market Capitalization, Economic Theory, Statistical Significance.
Frequently Asked Questions
What is the primary focus of this research?
The research examines the relationship between the market price of cryptocurrencies and two independent variables: 24-hour traded volume and the total circulating supply of the coins.
What are the central thematic fields?
The work combines financial economics and digital assets, focusing on how market demand (proxied by volume) and supply limitations influence the valuation of virtual tokens.
What is the main research question?
The core hypothesis tested is whether a statistically significant relationship exists between the market price of cryptocurrencies and their respective trading volumes and circulating supplies.
Which scientific method is applied?
The author applies a Log-Log Regression Model using a dataset of the top 100 cryptocurrencies by market capitalization, sourced from Coinmarketcap data from April 2019.
What is covered in the main section of the paper?
The main section encompasses a literature review, a detailed description of the data and transformations used, and an empirical analysis comparing three distinct regression models to determine the best fit for explaining price variance.
Which keywords define this work?
The work is characterized by terms such as Cryptocurrency, Log-Log Regression, Market Price, Traded Volume, Circulating Supply, and Decentralized Finance.
How does circulating supply affect the price according to the study?
The empirical results indicate a strong negative, inverse correlation, supporting the economic principle that higher supply generally puts downward pressure on price.
What does the model suggest about trading volume?
The study finds a positive correlation between traded volume and market price, suggesting that higher demand, reflected in increased trading activity, is associated with higher coin prices.
Why was the Log-Log model chosen?
The log-log transformation was chosen to normalize the data due to the vast differences in raw values across different cryptocurrencies, allowing for the interpretation of results as percentage changes.
What does the author suggest for future research?
The author suggests that further studies could incorporate external factors such as Google search interest, social media sentiment, the impact of physical currencies, and the role of governmental regulations.
- Citation du texte
- Jaby Felix Coronel (Auteur), 2019, Cryptocurrencies. Relationship between Market Price, Traded Volume and Circulating Supply, Munich, GRIN Verlag, https://www.grin.com/document/948802
