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The Evolving Liaisons between the Transaction Networks of Bitcoin and Its Price Dynamics


Bovet, Alexandre; Campajola, Carlo; Mottes, Francesco; Restocchi, Valerio; Vallarano, Nicolo; Squartini, Tiziano; Tessone, Claudio J (2023). The Evolving Liaisons between the Transaction Networks of Bitcoin and Its Price Dynamics. In: Proceedings of Blockchain Kaigi 2022 (BCK22), Sendai, Japan, 4 August 2022 - 5 August 2022, Physical Society of Japan.

Abstract

Cryptocurrencies (the most paradigmatic blockchain-based systems) are distributed systems that allow to exchange tokens among participants. These cryptocurrencies can also be acquired in exchange markets. The availability of the historical bookkeeping of cryptocurrency transfers in a public ledger opens up the possibility of understanding the relationship between aggregate users’ behaviour and the cryptocurrency pricing in exchange markets. This paper analyses the properties of the transaction network of Bitcoin. We consider different representations over a period of nine years since its creation and involving 16 million users and 283 million transactions. Importantly, these transactions do not include orders filled in exchange markets, which are settled outside of the blockchain, and ultimately determine Bitcoin price. By analysing these networks, we show the existence of Granger causal relationships between Bitcoin price movements and changes of its transaction network topology. Our results reveal the interplay between structural quantities, indicative of the collective behaviour of Bitcoin users, and price movements, showing that, during price drops, the system is characterised by a larger heterogeneity of users’ activity.

Abstract

Cryptocurrencies (the most paradigmatic blockchain-based systems) are distributed systems that allow to exchange tokens among participants. These cryptocurrencies can also be acquired in exchange markets. The availability of the historical bookkeeping of cryptocurrency transfers in a public ledger opens up the possibility of understanding the relationship between aggregate users’ behaviour and the cryptocurrency pricing in exchange markets. This paper analyses the properties of the transaction network of Bitcoin. We consider different representations over a period of nine years since its creation and involving 16 million users and 283 million transactions. Importantly, these transactions do not include orders filled in exchange markets, which are settled outside of the blockchain, and ultimately determine Bitcoin price. By analysing these networks, we show the existence of Granger causal relationships between Bitcoin price movements and changes of its transaction network topology. Our results reveal the interplay between structural quantities, indicative of the collective behaviour of Bitcoin users, and price movements, showing that, during price drops, the system is characterised by a larger heterogeneity of users’ activity.

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Additional indexing

Item Type:Conference or Workshop Item (Paper), refereed, original work
Communities & Collections:07 Faculty of Science > Institute of Mathematics
08 Research Priority Programs > Digital Society Initiative
08 Research Priority Programs > Social Networks
Dewey Decimal Classification:510 Mathematics
Uncontrolled Keywords:cryptocurrencies, bitcoin, speculative bubbles, product diffusion, network analysis, Granger causality
Language:English
Event End Date:5 August 2022
Deposited On:02 Feb 2024 08:06
Last Modified:22 Feb 2024 15:25
Publisher:Physical Society of Japan
Series Name:JPS conference proceedings
Number:40
ISSN:2435-3892
ISBN:9784890271535
OA Status:Gold
Free access at:Publisher DOI. An embargo period may apply.
Publisher DOI:https://doi.org/10.7566/jpscp.40.011002
Related URLs:https://journals.jps.jp/doi/book/10.7566/BCK22 (Publisher)
  • Content: Published Version
  • Language: English
  • Licence: Creative Commons: Attribution 4.0 International (CC BY 4.0)