DOES UNCERTAINTY PREDICT CRYPTOCURRENCY RETURNS? A

Transcript:DOES UNCERTAINTY PREDICT CRYPTOCURRENCY RETURNS? A:
DOES UNCERTAINTY PREDICT CRYPTOCURRENCY RETURNS? A COPULA BASED APPROACH. Dr. Ur Koumba Dpt Of Mathematics and Applied Mathematics University of Free State Provincial Research Colloquium Dpt of Treasury, Free State Province 19th September 2019 Contents Introduction Literature Review Objectives of the study Methodology Results Conclusion Introduction In the midst of the financial crisis of 2008-2009, creation of the 1st ever virtual currency called Bitcoin (BTC) which is an advanced application of cryptography. BTC is a unique and newly secure digital currency completely different from the traditional fiat currency. All operational transactions done through Blockchain(public ledger ). This is a decentralized peer-to-peer electronic payment system that has no government control and free from any central financial bodies. BTC also offers an almost non-existent transaction subscription that defeats the purpose of traditional payment methods to buy or sell goods and online services. Although BTC was introduced in 2009, it only started to become popular from the exponential growth expressed in 2013. In a similar fashion, an emerging class of cryptocurrencies has shown an unprecedented expansion owing to extensive supply and demand from cryptocurrency market. Quite a number of cryptocurrencies were produced to respond mainly to the insufficiencies of Bitcoin. Introduction Bitcoin, Ethereum, Ripple, Litecoin, Ethereum Classic, Monero, Dash, Augur, MaidSafeCoin and Waves are considered the top ten cryptocurrencies. Although Bitcoin remains in market capitalization leadership with more than 81% of the overall cryptocurrency market, an estimate rise of more than 720 other cryptocurrencies was already indicated in November 2016 with Ethereum (ETH) and Ripple (XRP) to respectively represent the second (7.6%) and third (2,4%) largest crypto currencies. Cryptocurrency ecosystem has significantly drawn enough attention to academics, financial experts, and policy makers to provide more attractable financial constraints. Academics have currently produced more than 300 papers related to cryptocurrencies and an ever more important aspect indicates the potential impacts on people who benefited from cryptocurrencies usage. However, one noteworthy observation that remains is the debate on potential determinants of Bitcoin’s volatility. Literature Review cryptocurrency has received a huge amount of criticism due mainly to the inability from governments or central financial institutions to control its fluctuations. Subsequently, cryptocurrency makes it difficult to access transaction fees and to reduce the risk of money laundry amongst other fraudulent activities. Store of value, unit of account and medium of exchange are the main characteristics of an ideal currency (Mankiw, 2007). The extremely volatile behavior of Bitcoin,