TITLE:
The Bitcoin’s Network Effects Paradox—A Time Series Analysis
AUTHORS:
Ioanna Roussou, Chaido Dritsaki, Emmanouil Stiakakis
KEYWORDS:
Bitcoin, Network Effects and Network Externalities, Market Capitalization, Price Volatility, Bitcoin Venues
JOURNAL NAME:
Theoretical Economics Letters,
Vol.9 No.6,
August
27,
2019
ABSTRACT: Bitcoin faces a network
effects problem: although its widespread adoption is related to an increase in
the number of users, its price volatility lowers consumption. Given the low
consumption, a low number of merchants accepting bitcoins would also be expected.
However, an increasing number of venues (i.e. merchants) are observed.
This paper aims to investigate that paradox. An econometric procedure is
followed examining the linkages among Bitcoin’s price volatility, market capitalization, and the number of venues,
by using weekly time series data for a
five-year time period (February 2013-February 2018). The
results indicate that the number of merchants is unaffected by a shock of the
market capitalization, while it is only initially affected by a shock of the
price and then stabilizes. Our study contributes to a better understanding of
the network effects’ phenomena appearing in the Bitcoin’s market and has
significant implications for e-commerce practitioners concerning their
decision-making process about Bitcoin adoption.