THE NEW ERA OF FINANCIAL INNOVATION: THE DETERMINANTS OF BITCOIN’S PRICE
https://doi.org/10.22146/jieb.30646 Sukmawati Sukamulja(1*), Cornelia Olivia Sikora(2)
(1) Faculty of Economics, Universitas Atma Jaya Yogyakarta
(2) Faculty of Economics, Universitas Atma Jaya Yogyakarta
(*) Corresponding Author
Abstract
Financial innovation has entered a new era in which a digitalized system and cryptocurrency have been created. This paper examines the factors that influence the price movement of bitcoin. This is not a legal currency in Indonesia; the Indonesian government has not made any regulations legalizing bitcoin’s use, but it has also not issued any new laws to prohibit the trade in bitcoins and other digital currencies. The demand for, and price growth of, bitcoin are interesting matters to study, especially for Indonesians who still have questions about the progress of Bitcoin transactions and the factors that influent them. In Indonesia itself, without any protection from the government, the bitcoin price on December 14, 2017 had already reached more than IDR224.5 million, compare to IDR60 million in October 2017. Bitcoin is the first peer-to-peer currency, and was introduced by Satoshi Nakamoto in 2008. Since its inception, bitcoin has served more than 17 million users, including Indonesians. Bitcoin behaves in a different manner, compared to traditional currencies and the one that affects bitcoin’s price is its attractiveness for investors. The Vector Error Correction Model (VECM) is applied to analyze the short-term and long-term influences. VECM is used in this research because the data is stationary in the first difference and has a cointegration relationship. To make the interpretation clearer, the impulse response function and variance decomposition also are included in this research. The result indicates that the macroeconomic indicator, represented by the Dow Jones Industrial Average (DJIA), the demand for bitcoins and the gold price influence bitcoin’s price fluctuations in the short-run and long-run. Bitcoin’s supply does not influence its price fluctuation in the long-run but does influence it in the short-run. The implication of this research is bitcoin could compete as an alternative investment compared to the capital markets and gold.
Keywords
Full Text:
Sukmawati & CorneliaReferences
Bergstra, J. A., & Weijland, P. (2014). Bitcoin: a money-like informational commodity. arXiv preprint arXiv:1402.4778.
Bitcoin Price. (n.d.). Retrived from www.coingecko.com/id/grafik_harga/bitcoin/idr - accessed on December 14, 2017.
Bouoiyour, J., & Selmi, R. (2015). What does bitcoin look like? Annals of Economics & Finance, 16(2).
Bouoiyour, J., & Selmi, R. (2017). The bitcoin price formation: Beyond the fundamental sources. arXiv preprint arXiv:1707.01284.
Bouoiyour, J., Selmi, R., Tiwari, A. K., & Olayeni, O. R. (2016). What drives bitcoin price. Economics Bulletin, 36(2), 843-850.
Brière, M., Oosterlinck, K. & Szafarz, A. (2013). Virtual currency, tangible return: Portfolio diversification with bitcoins. (CEB Working Paper No. 13/031 September). Université Libre de Bruxelles: Solvay Brussels School of Economics and Management, Centre Emile Bernheim.
Buchholz, M., Delaney, J., Warren, J., & Parker, J. (2012). Bits and bets, information, price volatility, and demand for bitcoin. Economics, 312. Retrived from http://www.bitcointrading.com/pdf/bitsandbets.pdf.
Ciaian, P., Rajcaniova, M., & Kancs, D. A. (2014). The economics of bitcoin price formation. EERI Research Paper Series.
Ciaian, P., Rajcaniova, M., & Kancs, D. A. (2016). The economics of bitcoin price formation. Applied Economics, 48(19), 1799-1815.
Diffie, W., & Hellman, M. (1976). New directions in cryptography. IEEE Transactions on Information Theory, 22(6), 644-654.
Dwyer, G. P. (2015). The economics of bitcoin and similar private digital currencies. Journal of Financial Stability, 17, 81-91.
Garcia, D., Tessone, C. J., Mavrodiev, P., & Perony, N. (2014). The digital traces of bubbles: feedback cycles between socio-economic signals in the bitcoin economy. Journal of the Royal Society Interface, 11(99), 20140623.
Grinberg, R. (2012). Bitcoin: An innovative alternative digital currency. Hastings Sci. & Tech. LJ, 4, 159.
Gujarati, D. N. (2016). Basic Econometrics. Irwin Economics
Singgih, Viriya P. (2017). Bitcoin penetrates deeper into Indonesian market, The Jakarta Post. Retrieved from http://www.thejakartapost.com/ news/2017/01/03/bitcoin-penetrates-deeper-into-indonesian-market.html.
idBitcoin. (n.d.) Asosiasi Blockchain Indonesia. [Indonesian Blockchain Association]. Retrived from https://idbitcoin.org/project/bitislandscom - accessed on September 5, 2017
Jacque, L. L. (2001). Financial innovations and the dynamics of emerging capital markets. In Financial innovations and the welfare of nations (pp. 1-21). Springer, Boston, MA.
Jia, L. (2013). Bitcoin: theory, practice and influences. Studies International Finance, 12, 14-25.
Kristoufek, L. (2013). Bitcoin meets google trends and wikipedia: Quantifying the relationship between phenomena of the internet era. Scientific Reports, 3, 3415.
Lütkepohl, H., & Krätzig, M. (Eds.). (2004). Applied time series econometrics. Cambridge university press.
Lütkepohl, H., & Reimers, H. E. (1992). Impulse response analysis of cointegrated systems. Journal of economic dynamics and control, 16(1), 53-78.
Mathews, K. & Thompson, J. (2008). The economics of banking. 2nd ed. Chippreham, Wiltshire, Great Britain.
Merton, R. C. (1992). Financial innovation and economic performance. Journal of Applied Corporate Finance, 4(4).
Miller, M. H. (1986). Financial innovation: The last twenty years and the next. Journal of Financial and Quantitative Analysis, 21(4), 459-471.
Mwangi, M. K. (2007). Factors influencing financial innovation in Kenya’s securities market: A case study of firms listed at the Nairobi securities exchange. Unpublished MBA Project, University of Nairobi.
Pianalto, S. (2007). Financial innovation: benefit and challenges. Presentation to the Community Development Policy Summit, Cleveland, Ohio, 22 June.
Polasik, M., Piotrowska, A. I., Wisniewski, T. P., Kotkowski, R., & Lightfoot, G. (2015). Price fluctuations and the use of bitcoin: An empirical inquiry. International Journal of Electronic Commerce, 20(1), 9-49.
Ron, D., & Shamir, A. (2013, April). Quantitative analysis of the full bitcoin transaction graph. In International Conference on Financial Cryptography and Data Security (pp. 6-24). Springer, Berlin, Heidelberg.
Roose, K. (2013). I bought a bitcoin: How I joined a virtual currency megabubble. New York.
Santoro, M. A., & Strauss, R. J. (2012). Wall street values: business ethics and the global financial crisis. Cambridge University Press.
Singgih, Viriya P. (2017). Bitcoin penetrates deeper into Indonesian market, The Jakarta Post. Retrieved from http://www.thejakartapost.com/news/2017/01/03/bitcoin-penetrates-deeper-into-indonesian-market.html.
Sukamulja, S. (2001). Kointegrasi, koreksi kesalahan dan keterbentukan harga antar bursa: Kasus Nyse-Lse-Tse dan Nyse-Lse-Jsx [Cointegration, error correction model, and price discovery among NYSE-LSE-TSE-JSX] (Doctoral dissertation, UGM.).
van Wijk, D. (2013). What can be expected from the bitcoin. Erasmus Universiteit Rotterdam.
Vassiliadis, S., Papadopoulos, P., Rangoussi, M., Konieczny, T., & Gralewski, J. (2017). Bitcoin value analysis based on cross-correlations. Journal of Internet Banking and Commerce, 22(S7), 1.
Wang, J., Xue, Y., & Liu, M. (2016). An analysis of bitcoin price based on VEC model. In Proceedings of the 2016 International Conference on Economics and Management Innovations.
Wu, C. Y., Pandey, V. K., & DBA, C. (2014). The value of bitcoin in enhancing the efficiency of an investor’s portfolio. Journal of Financial Planning, 27(9), 44-52.
Yermack, D. (2013). Is bitcoin a real currency? An economic appraisal. National Bureau of Economic Research, No. w19747.
Zhu, Y., Dickinson, D., & Li, J. (2017). Analysis on the influence factors of bitcoin’s price based on VEC model. Financial Innovation, 3(1), 3. DOI: https://doi.org/10.22146/jieb.30646
Article Metrics
Abstract views : 12571
| 
views : 9892
Refbacks
- There are currently no refbacks.
Copyright (c) 2018 Journal of Indonesian Economy and Business
This work is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License.
| Journal of Indonesian Economy and Business |
| The Journal of Indonesian Economy and Business (print ISSN 2085-8272; online ISSN 2338-5847) is published by the Faculty of Economics and Business Universitas Gadjah Mada, Indonesia. The content of this website is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License |
| © 2019 Journal of Indonesian Economy and Business | Visitor Statistics |