Decrypting crypto: Analyzing Trust, Corruption and the Formation of Speculative Bubbles in the Bitcoin market

Abstract

This thesis sought to determine and quantify the variables which most directly and substantially effect the price of bitcoin to help explain its extreme volatility. Trust in institutions and other events which effect political faith, as well as mass media coverage and social media activity, were found to be statistically significant contributors to price shocks within the Bitcoin Market. The vehicle by which these factors as well as other minor ones effect the price, however, is speculation. As trust in institutions falls, for example, people lose faith in their own domestic investments and search for alternative options. In this search, they come across bitcoin and choose to invest. Media coverage likewise spreads information colored in either a positive or negative light and inspires potential investors to turn to search engines and Bitcoin forums for answers. As such, and as seen in the Vector Auto Regression on speculation in this thesis, speculation is a critical predictor when modeling price changes in the Bitcoin market.