eprintid: 30059
rev_number: 14
eprint_status: archive
userid: 3730
dir: disk0/00/03/00/59
datestamp: 2021-06-09 13:48:21
lastmod: 2021-06-23 08:17:53
status_changed: 2021-06-09 13:48:21
type: workingPaper
succeeds: 28893
metadata_visibility: show
creators_name: Lambrecht, Marco
creators_name: Sofianos, Andis
creators_name: Xu, Yilong
title: Does mining fuel bubbles? An experimental study on cryptocurrency markets
subjects: ddc-330
divisions: i-181000
keywords: bubbles, cryptocurrency, financial market experiment
cterms_swd: Bitcoin
abstract: The massive price bubbles of decentralized cryptocurrencies, such as Bitcoin, have created a puzzle for economists. How can a non-revenue-generating asset exhibit such extreme price dynamics, forming multiple episodes of bubbles and crashes since its creation? The answer is not straightforward, since cryptocurrencies differ in several important aspects from other conventional assets. In this paper, we investigate how key features associated with the Proof-of-Work consensus mechanism affect pricing. In a controlled laboratory experiment, we observe that the formation of price bubbles can be causally attributed to mining. Moreover, bubbles are more pronounced if the mining capacity is centralized to a small group of individuals. Analysis of the order book data reveals that miners seem to play a crucial role in bubble formation. The results demonstrate that high price volatility is an inherent feature of cryptocurrencies based on a mining protocol, which seriously limits any prospects for such assets truly becoming a medium of exchange.
date: 2021-05
id_scheme: DOI
id_number: 10.11588/heidok.00030059
schriftenreihe_cluster_id: sr-3
schriftenreihe_order: 0703
ppn_swb: 1759863653
own_urn: urn:nbn:de:bsz:16-heidok-300592
language: eng
bibsort: LAMBRECHTMDOESMINING202105
full_text_status: public
series: Discussion Paper Series / University of Heidelberg, Department of Economics
volume: 0703
place_of_pub: Heidelberg
pages: 58
edition: 1. Überarbeitung
citation:   Lambrecht, Marco ; Sofianos, Andis ; Xu, Yilong  (2021) Does mining fuel bubbles? An experimental study on cryptocurrency markets.  [Working paper]     
document_url: https://archiv.ub.uni-heidelberg.de/volltextserver/30059/7/Lambrecht_Sofianos_Xu_2021_dp703.pdf