New research paper outlines Bitcoin market route to maturity

Giulio Prisco
Oct 12, 2018 · 3 min read

A new research paper published in the renowned scientific journal Chaos: An Interdisciplinary Journal of Nonlinear Science “shows Bitcoin — and potentially other cryptocurrencies — in a surprisingly positive light.”

The paper, titled “Bitcoin market route to maturity? Evidence from return fluctuations, temporal correlations and multiscaling effects,” is authored by researchers at the Henryk Niewodniczański Institute of Nuclear Physics (IFJ PAN) of the Polish Academy of Sciences in Kraków.

The researchers have analyzed Bitcoin price movements in the last six years and concluded that key statistical features of Bitcoin price fluctuations, such as power laws and fractal dimensions, are now similar to those of mature, established financial markets. An open access preprint is available from arXiv.

Lead researcher Prof. Stanislaw Drozdz says:

“When new emerging financial markets started to appear in Central and Eastern Europe after the collapse of socialism, the question of their stability naturally arose. A number of statistical criteria were identified at that time, making it easier to assess the maturity of the market. We were curious about the results we would get if we used them to look at the Bitcoin market, currently valued at hundreds of billions of dollars.”

“One of the more sophisticated features signalling the maturity of a market is the multifractal nature of its characteristics. Multifractals are fractals of fractals, i.e. structures in which, in order to see self-similarity, various fractal fragments have to be magnified at different speeds. Multifractal analyses reveal dependencies existing in many scales. In the case of Bitcoin, we detected multifractality in the functions of fluctuations in rates of return, particularly evident in the last six months of the examined period. This was of the same type as for regular, mature markets, such as the stock, dollar, oil or bond markets.”

Drozdz concludes:

“The most important statistical parameters of the Bitcoin market indicate very clearly that for many months now it has met all the important criteria of financial maturity. It seems that in the case of other cryptocurrencies it will be possible to expect a similar transformation. If this happens, the world’s largest market, the Forex market, can look forward to very real competition.”

In other words, the Bitcoin market was anomalous in the first few years after the introduction of Bitcoin, but is now stabilizing and becoming similar to mature markets.

The conclusion of the paper itself reads:

“[In] spite of its virtual nature and novelty, the Bitcoin market has recently and rapidly developed the statistical hallmarks which are empirically observed for all ‘mature’ markets like stocks, commodities or Forex. It appears plausible that other cryptocurrencies will follow the same trajectory”

These conclusions seem to imply that the wild Bitcoin price fluctuations, which are often covered by the sensationalist press and scare speculators and users away, may soon become a thing of the past.

Picture from Henryk Niewodniczański Institute of Nuclear Physics (IFJ PAN) of the Polish Academy of Sciences in Kraków.

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