Title: Fundamental and speculative components of the cryptocurrency pricing dynamics
Authors: Jiri Kukacka - Czech Academy of Sciences, Institute of Information Theory and Automation (Czech Republic) [presenting]
Ladislav Kristoufek - Institute of Information Theory and Automation, Czech Academy of Sciences (Czech Republic)
Abstract: The driving forces behind crypto assets price dynamics are often perceived as being dominated by speculative factors and inherent bubble-bust episodes. The fundamental components are believed to have a weak, if any, role in price formation and emergent dynamics. This research studies five crypto assets with different backgrounds, including Bitcoin, Ethereum, Litecoin, XRP, and Dogecoin between 2016 and 2022. It utilizes the cusp catastrophe model to connect the fundamental and speculative drivers with possible price bifurcation characteristics of events of a market collapse. The findings show that all studied assets except Dogecoin demonstrate their price and return dynamics emerge from complex interactions among both fundamental and speculative components, including episodes of pricing bifurcations. Bitcoin shows the strongest fundamentals, with the on-chain activity driving the fundamental part of the dynamics. Investor attention mainly drives the speculative component for all studied assets. Thus, the fundamental factors should not be left out when constructing crypto assets pricing models.