Cryptocurrency Bitcoin Study: Various Bitcoin Dynamics Models to Explore the Fundamental Value of Bitcoin and Its Price Formation


Student thesis: Master's Thesis

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Related Research Unit(s)


Awarding Institution
  • Junbo WANG (Supervisor)
  • Liu HONG (External person) (External Co-Supervisor)
  • Jeff HONG (Co-supervisor)
Award date17 Jun 2022


This thesis is to look at the fundamental value and driving factors of Bitcoin price and to build various dynamic models of the bitcoin system (taking bitcoin blockchain and exchanges all as a whole) for further study of the bitcoin system’s characteristics and behaviors of bitcoin market price. A survey of previous papers on this topic is conducted and several research directions are summarized. Based on the survey, a new perspective looking upon the Bitcoin price is introduced and hypothesized. The idea comes from the deep understanding of blockchain technology and bitcoin itself, which underpins Bitcoin, instead of just observing data and phenomena from outside. Based on the hypothesis that the cost of each mined bitcoin (hereinafter referred to as the cost price) is the fundamental factor in the formation of the bitcoin price and some exogenous factors cause the bitcoin price to fluctuate around the cost price, various dynamics models of the bitcoin system are empirically built and some preferred models fit quite well with the real bitcoin price data. The results strongly support my hypothesis. The contribution and innovation of this thesis is the combination of previous research results with the dynamic modeling method (system identification), which is rarely used and studied in the bitcoin price study. Researchers in the future can use the implications of the bitcoin system, discovered in the dynamic models, to study the bitcoin price formation, market price prediction, and many other topics.