Research Article Open Access

Volatility Scenario of Bitcoin: The restraining role as a store of value and a unit of account

Abstract

Bitcoin and other cryptocurrencies are subject to unusual price fluctuations that increase the concern of the people and institutions to transact with it and to invest in it. The daily price volatility in the case of Bitcoin scales even up to 50 per cent in some days. Studies on market efficiency, volatility, demand drivers and so on of Bitcoin are done on considerable scale to bring out pertinent information about its different behavioural dimensions. However, its acceptance and use are limited primarily on account of the volatility and the political risks associated to it. This paper pioneers in the assessment of the temporal sequence and magnitude of volatility of Bitcoin by analysing 2018 daily price data. The study found that the coin shows unusually high daily price changes of 10 per cent or more only on 70 days (3.47%) out of the 2017 daily returns computed from the price data. Noticeably, the number of days with positive returns in the 70 days is 31 as against the 39 days with losses. These unusual daily price changes of 3 to 4 times out of 100 found in the study are the cause of volatility concern spreading around Bitcoin. There are six instances of more than 100 days gap between the two unusual price changes in the 70 cases. No significant correlation is found between the unusual daily returns and the corresponding volume of trade on these days. The unusual daily volatility of Bitcoin occurring once in a while may dampen its role as a store of value and a unit of account.      

 Dr. S. Santhosh Kumar