Financial economics of cryptocurrency markets

Abstract

The financial sector is currently experiencing a gradual change, driven by near-term digital and technological innovations. Emerging distributed ledger technologies (DLT), such as Blockchain, open new avenues for investors and companies providing fast, secure, and low-cost peer-to-peer transactions. Bitcoin, the first application of Blockchain, has inspired other applications and products, and led to the creation of thousands of other cryptocurrencies and new wave of crowdfunding. The primary purpose of this study is to investigate both cryptocurrencies and cryptocurrency-based crowdfunding. This dissertation made up of three main parts. In the first part, the determinants of Initial Coin Offering (ICO) success and aftermarket performance of ICOs are analyzed. We find that higher ratings, shorter duration, smaller share for token sale, larger number of experts and more members in the developing team have a positive impact on ICO success. We also observe a significant relationship between offer price, market sentiment and longer term post-ICO performance. Yet, key to a successful ICO and post-ICO performance differ between boom vs bust periods in the cryptocurrency markets. The second part deals with the weak-form efficiency property of four largest cryptocurrencies by market capitalization, i.e. Bitcoin, Litecoin, Ripple and Ethereum. We use different Hurst exponent estimation techniques at different intraday frequencies. We reveal a U-shaped pattern for pricing efficiency with respect to the sampling frequency. The last part is about the hedge and safe-haven properties of Bitcoin, and its interlinkages to other precious metals (gold, silver, platinum, and palladium). Using high frequency data, we find evidence of spillover effects in volatility among Bitcoin and precious metals. Furthermore, the results suggest that the risk spillovers are time dependent and are sensitive to slowdowns in economic activity and political events. Overall, we contribute to the understanding of both market and corporate based approaches to the role of cryptocurrencies in capital markets.