Blockchain technology and some statistical properties of crypto-currency prices

Abstract

The blockchain technology and bitcoin were introduced in 2009 by Satoshi Nakamoto. Since then there has been a great interest in the innovative technology and the price of bitcoin rose spectacular and hit nearly 20 000 USD. In this thesis, the blockchain technology is described in detail. For conventional transactions, a trusted third party (i.e. a bank) is required to secure the transaction. But the blockchain technology offers a new way to process transactions where the trusted third party is not required anymore and is replaced by cryptography. Furthermore, the question if prices of crypto-currencies behave differently than stock prices from a statistical point of view is investigated. It is common knowledge that prices of stocks possess so called stylized facts and therefore the question arises if crypto-currencies conform to them too. The returns (logarithmic price differences) of stocks are not normally distributed and possess heavier tails. Furthermore, there is the so called volatility clustering effect, i.e. after days with high volatility it is much more likely that the next day is volatile. Therefore the statistical tools to analyze these questions were explained and then used to answer the question if crypto-currency prices display the same stylized facts as stock prices. The answer is positive, i.e. crypto-currency prices display the same statistical properties as stocks. Nevertheless, they are much more volatile than stocks but can offer benefits, from an investor's point of view, since they are uncorrelated to stock markets and therefore can be used for diversification.