Exploring the Determinants of Crypto Currencies Price

A Short and Long-Run Analysis

Abstract

Purpose: This study examines the factors influencing the prices of major cryptocurrencies (Bitcoin, Litecoin, and Ethereum) in both the short and long term. The analyzed variables include the attractiveness of cryptocurrencies, stock market indices, commodity markets, and interactions among cryptocurrencies.

Method: We exploited daily data from August 13, 2015, to March 29, 2020. The analysis used a Vector Error Correction Model (VECM) to determine the dynamic relationships among the variables.

Results: The findings reveal that in the short term, the value of each cryptocurrency is mainly explained by the value of the two competing cryptocurrencies and the overall cryptocurrency growth index, while the price of gold does not significantly affect any of them. In the long term, the value of all three cryptocurrencies is negatively influenced by their own attractiveness and by the commodity markets.

Implications: The results suggest that investors and policymakers should consider both the competitive dynamics among cryptocurrencies and factors from the commodity market when evaluating cryptocurrency prices. This has implications for investment strategies and market regulation.

Originality: This research contributes to the existing literature by integrating a comparative analysis of major cryptocurrencies and exploring the influences of competition and commodity markets on their values. By employing a VECM, the study provides an innovative perspective on the short- and long-term interactions among these digital assets.