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Data Mining Reveals the Factors Driving the Price of Bitcoins

Kristoufek says that while speculation has played an important role in the rise of Bitcoin, the data clearly indicates that more conventional factors have been important too. These include the use of bitcoins in trade, the supply of the currency and its price level, whether seemingly over or undervalued.

At the same time, the rise in the price of bitcoins has generated significant interest in the process of bitcoin mining itself. This has persuaded people to invest their own computing power in mining bitcoins for profit. That too has had an effect on the price, says Kristoufek.

Interestingly, this effect has become less pronounced more recently because of the specialized and expensive computing hardware that has become necessary to compete in the mining market.

And finally, Kristoufek says there is good evidence that the price of bitcoins has been driven by speculation, both in the long run and in short term rises and falls. “During the episodes of explosive prices, the [speculative] interest drives the prices further up, and during rapid declines, it pushes them further down,” he says.

His analysis also found no evidence that investors use Bitcoin as a safe haven like gold.

See the full story here: http://www.technologyreview.com/view/527906/data-mining-reveals-the-factors-driving-the-price-of-bitcoins/?utm_campaign=newsletters&utm_source=newsletter-daily-all&utm_medium=email&utm_content=20140605