Event Title

Bitcoin and the Cross-Market Effects of the Mt. Gox Meltdown

Location

D34000

Start Date

1-4-2016 1:20 PM

End Date

1-4-2016 1:55 PM

Description

The long-term viability of Bitcoin and other cryptocurrencies is uncertain. We examine the cross-market dynamic relationships among four Bitcoin cryptocurrency markets that play an important role in solidifying or weakening Bitcoin’s viability as a form of payment, investment, and open source technology. We pay particular attention to cross-market relations during the introduction of a new, competing Bitcoin exchange, Bitfinex, and the subsequent demise of the once-prominent Bitcoin exchange, Mt. Gox. Our findings show that Bitfinex's introduction led to a shifting of trading activity from the once popular Mt. Gox exchange to other exchanges, in particular, Bitfinex. Mt. Gox's loss of trading activity caused price distortions in all Bitcoin markets under study. In addition, cross-market relationships, especially those between Mt. Gox and other markets, became less efficient while Mt. Gox experienced its death throes. These inefficiencies disappeared once Mt. Gox shut down. Our study provides evidence that (1) Bitcoin markets are susceptible to volume losses to rival exchanges, (2) shifting trading activity is also associated with price distortions mainly originating from the suffering exchange, and (3) Bitcoin cross-market dynamics are resilient and ultimately self-healing from shocks, strengthening Bitcoin’s long-term viability.

Comments

Dr. Michael Williams is an Assistant Professor of Finance, Dr. Semih Cekin is an Assistant Professor of Economics, and Dr. David Green is an Associate Professor of Management Information Systems in the College of Business.

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Apr 1st, 1:20 PM Apr 1st, 1:55 PM

Bitcoin and the Cross-Market Effects of the Mt. Gox Meltdown

D34000

The long-term viability of Bitcoin and other cryptocurrencies is uncertain. We examine the cross-market dynamic relationships among four Bitcoin cryptocurrency markets that play an important role in solidifying or weakening Bitcoin’s viability as a form of payment, investment, and open source technology. We pay particular attention to cross-market relations during the introduction of a new, competing Bitcoin exchange, Bitfinex, and the subsequent demise of the once-prominent Bitcoin exchange, Mt. Gox. Our findings show that Bitfinex's introduction led to a shifting of trading activity from the once popular Mt. Gox exchange to other exchanges, in particular, Bitfinex. Mt. Gox's loss of trading activity caused price distortions in all Bitcoin markets under study. In addition, cross-market relationships, especially those between Mt. Gox and other markets, became less efficient while Mt. Gox experienced its death throes. These inefficiencies disappeared once Mt. Gox shut down. Our study provides evidence that (1) Bitcoin markets are susceptible to volume losses to rival exchanges, (2) shifting trading activity is also associated with price distortions mainly originating from the suffering exchange, and (3) Bitcoin cross-market dynamics are resilient and ultimately self-healing from shocks, strengthening Bitcoin’s long-term viability.