Examination of Bitcoin Exchange Through Agent-Based Modeling: Focusing on the Perceived Fundamental of Bitcoin

Bitcoin prices have fluctuated greatly, and news media have warned investors about a possible price bubble, arguing that the fluctuation arises mainly from people's blind pursuit of short-term trends. Despite these increasing concerns, however, only a few studies have addressed them. This article examines the problem using agent-based modeling. In our model, agents are designed to interact with one another in two ways: Price and social interactions. In their price interactions, agents adopt one of three strategies (fundamentalist, momentum trading, and contrarian trading) in investing at each time and adopt a strategy to maximize their expected benefits. In their social interactions, uninvolved agents become involved at various times based on their network properties (word-of-mouth effect). To examine the distinctive properties of Bitcoin from a comparative perspective, two representative currencies (Euro and Turkish lira) and two financial assets (Nasdaq and Nasdaq leverage index) are used in the agent-based model. The results show that the fraction of fundamentalists and price volatility have mutual Granger causal relationships overall. Also, no significant differences are found in the parameters of social interaction. These results are contrary to commonly held beliefs that Bitcoin prices are merely a result of blind pursuit and herding behavior.