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Bitcoin's Price Changes With Major News Events: AIER Study

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Bitcoin's largest price changes coincide with major news events about the cryptocurrency, according to a research brief published by the American Institute for Economic Research or AIER.

The paper, published at AIER by Senior Research Fellow Max Gulker, takes into account the causes of Bitcoin's largest daily changes in price, with focus from the beginning of 2016 through the end of November 2017.

The institute joined with Missouri University to examine the connection between major changes in bitcoin pricing and newsworthy events.

"While the nature of the news events does not necessarily explain the magnitude of Bitcoin's price changes or its daily volatility, it does suggest that the market is not being driven entirely by manipulation or the behavior of small numbers of traders," the paper noted.

AIER noted that the volatility of the Bitcoin/dollar exchange rate is frequently discussed in the media. Often, this volatility is cited as the primary reason for not treating Bitcoin as a reliable store of value and medium of exchange, which are generally accepted requirements for something to count as a money.

They presented seven largest daily price changes of Bitcoin in terms of absolute value during the period, with each coinciding with a new event or piece of information that investors may have found important.

The largest daily increase in Bitcoin's price occurred on July 20, 2017, about 25.4 percent, when an agreement appeared to be reached regarding the scaling of Bitcoin's blockchain-based payment system. Meanwhile, the largest daily price decrease was on September 14, 2017, when the Chinese government announced plans to shut down domestic cryptocurrency exchanges.

The researchers also examined the 50 largest price changes in absolute value during the period.

"If Bitcoin trades in an efficient market with enough buyers and sellers, theory holds, its price should reflect all publicly available information about it, and changes in price should reflect new information. However, Bitcoin might not yet meet this standard," the paper noted.

In the research brief, AIER noted that if the number of market participants is relatively small, the idiosyncratic behavior of a few individuals may significantly impact the price. They also noted that there have been accusations of market manipulation by traders of Bitcoin, and that many observers believe Bitcoin to be in a speculative bubble, which may or may not imply large price changes not driven by newly revealed information.

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