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The impact of cryptocurrency miners' compensation on Bitcoin pricing

Vol. 18, Iss. 11, NOVEMBER 2019

Received: 1 October 2019

Received in revised form: 15 October 2019

Accepted: 29 October 2019

Available online: 29 November 2019


JEL Classification: C72, D61, E42

Pages: 2453–2467

Mikhailov A.Yu. Financial University under Government of Russian Federation, Moscow, Russian Federation

Meinkhard A.A. Financial University under Government of Russian Federation, Moscow, Russian Federation

Subject The article discusses how technological distinctions of cruptocurrencies influence pricing.
Objectives The study unfolds technological properties of cryptocurrencies through the case of Bitcoin. We analyze the impact of a cyclical decrease in Bitcoin miners' compensation on its market value.
Methods The study refers to data on prices and technology of Bitcoin and offers an approach based on the Kendall rank correlation, which determines net trading results for each selected period and calculates mean prices for the results. The approach eliminates price volatility and improves the results.
Results The analysis confirms the correlation between a decrease in miners’ compensation and market value of Bitcoin.
Conclusions and Relevance Cyclical decreases in Bitcoin miners' compensation are the key technological factor that underlies a growth in the value of Bitcoin. Dropping every four years, the decreasing supply of Bitcoin leads to an artificial deficit of Bitcoin, while the growing demand cause its value to rise. The findings can notably influence the fundamental evaluation of Bitcoin and allow investors to evaluate any existing cryptocurrency using the method. The findings can serve for refining approaches to evaluating the investment potential of cryptocurrencies.

Keywords: limited issue, Bitcoin, supply, inflation, Bitcoin halving, cost saving


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