A comparative volatility analysis and an enquiry into the future of Bitcoin

Abstract

The main object of this thesis is to investigate if Bitcoin has matured as a financial asset. We intend to do this by comparing the volatility of Bitcoin to the volatility of gold and S&P500 using the best fitting GARCH models. By doing this we can examine whether the volatility is decreasing, suggesting a maturing market. We will also look at the correlation between these assets. As part of this thesis we will provide a clear picture of what Bitcoin is, and how it functions. We are also going to uncover some of the opportunities and limitations that faces Bitcoin. This will be done by giving a thorough explanation of the technical aspects of Bitcoin to get a clear image of the security and reliability of Bitcoin and the blockchain-technology. To answer the questions presented in this thesis we used a variety of GARCH models to model the volatility of Bitcoin and other assets. This revealed that Bitcoin exhibits an extreme volatility, which does not seem to be decreasing or stabilizing. This lead to the conclusion that Bitcoin is not yet maturing as a financial asset.