Are bitcoin returns predictable? [Conference Object]

Abstract

Bitcoin is the most radical of the cryptocurrencies which are becoming popular nowadays. The advantage of the cryptocurrencies is that they are decentralized systems so do not need central banks. The purpose of this study is to determine if there is volatility in the returns of Bitcoin and if so, whether it is predictable. The volatility of the Bitcoin returns was investigated using the log-normal stochastic volatility (SV) model and SV model with leverage for daily data covering the period between 19.12.2011 and 29.01.2018. While there is no significant leverage effect in the Bitcoin returns, it can be said that the volatility is permanent and unpredictable. The unpredictability of Bitcoin returns’ fluctuations suggests that it is risky to use it as an investment tool or currency. It is increasing day by day that Bitcoin takes place of banknotes or digital money, which are conventional means of payment. The more widespread the system, the safer and the more resistant to speculative it will be.