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    Booms, busts and heavy-tails: the story of Bitcoin and cryptocurrency markets?

    Fry, J (2018) Booms, busts and heavy-tails: the story of Bitcoin and cryptocurrency markets? Economics Letters, 171. pp. 225-229. ISSN 0165-1765

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    Abstract

    We develop bespoke rational bubble models for Bitcoin and cryptocurrencies that incorporate both heavy tails and the probability of a complete collapse in asset prices. Empirically, we present robustified evidence of bubbles in Bitcoin and Ethereum. Theoretically, we show that liquidity risks may generate heavy-tails in Bitcoin and cryptocurrency markets. Even in the absence of bubbles dramatic booms and busts can occur. We thus sound a timely note of caution.

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