Analysis of Relationship between Price and Hashrate in Bitcoin

Student: Kolodin Nikita

Faculty: International College of Economics and Finance

Educational Programme: Financial Economics (Master)

Final Grade: 8

Year of Graduation: 2020

This paper aims to study the relationship between hashrate — computations which power bitcoin operations and which are done by miners — and the market price of bitcoin. Previous studies suggest contradictory results: some state that bitcoin hashrate influences the price and use it as an input in a general equilibrium model aimed at predicting bitcoin price, while some show that hashrate is actually insignificant in that matter using econometrical approach. In this paper I try to reconcile these findings by using bitcoin cost of production model as a proxy of hashrate and the concept of threshold cointegration. The motivation behind this is the assumption that bitcoin predicted price and its actual price may seem unrelated within a certain corridor. However, if they depart too much from one another they are soon pulled back due to benefits from arbitrage exceeding friction costs.

Full text (added June 1, 2020)

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