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Using an artificial financial market for studying a cryptocurrency market

Abstract

This paper presents an agent-based artificial cryptocurrency market in which heterogeneous agents buy or sell cryptocurrencies, in particular Bitcoins. In this market, there are two typologies of agents, Random Traders and Chartists, which interact with each other by trading Bitcoins. Each agent is initially endowed with a finite amount of crypto and/or fiat cash and issues buy and sell orders, according to her strategy and resources. The number of Bitcoins increases over time with a rate proportional to the real one, even if the mining process is not explicitly modelled. The model proposed is able to reproduce some of the real statistical properties of the price returns observed in the Bitcoin real market. In particular, it is able to reproduce the unit root property, the fat tail phenomenon and the volatility clustering. The simulator has been implemented using object-oriented technology, and could be considered a valid starting point to study and analyse the cryptocurrency market and its future evolutions.

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Notes

  1. 1.

    BlockChain is a web site which displays detailed information about all transactions and Bitcoin blocks, providing graphs and statistics on different data, (https://blockchain.info/). We used this web site for extracting the empirical data (such as daily data about price, unique address number and Bitcoin number, in the period between January 1, 2012 and April 10, 2014) used in this work.

  2. 2.

    This refers to the article entitled “The Evolution of the Bitcoin Clearing House” published on February 14, 2014 on the website www.coindesk.com.

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Acknowledgments

One of the authors, Giulio Concas, made a significant contribution to this work before he suddenly passed away on 15 October 2014. Giulio was a special colleague and friend, and this paper is dedicated to his memory.

Author information

Correspondence to Michele Marchesi.

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Cocco, L., Concas, G. & Marchesi, M. Using an artificial financial market for studying a cryptocurrency market. J Econ Interact Coord 12, 345–365 (2017). https://doi.org/10.1007/s11403-015-0168-2

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Keywords

  • Artificial financial market
  • Cryptocurrency
  • Bitcoin
  • Heterogeneous agents
  • Market simulation