Network effects and store-of-value features in the cryptocurrency market

Bakhtiar, Tiam; Luo, Xiaojun; Adelopo, Ismail

Abstract

It is important to determine the network effects and store-of-value feature of cryptocurrencies due to the argument that it could be considered as a new ‘asset class’. Current studies on cryptocurrencies' network effects mainly focused on using Metcalfe's Law to evaluate the relationship between cryptocurrency prices and the squared number of active wallets addresses. In terms of cryptocurrencies' store-of-value features, previous studies primarily compared daily volatility of limited number of popular cryptocurrencies to Gold. Extant studies are also based on out-of-date data. This research extends the literature by using up-to-date daily data of a sample of the top 100 cryptocurrencies covering 2010–2023 to explore the network effects and the store of value characteristics of a wide range of cryptocurrencies. Firstly, we used nonlinear regression models to examine the relationship between cryptocurrency prices and active wallets addresses, the number of transactions and circulations. Secondly, to deepen our understanding of the store-of-value features of cryptocurrencies, we used a combination of GARCH models and time series analysis to explore the volatility in the daily returns of the sampled cryptocurrencies. Findings indicate that at least one of the network factors (i.e., active wallets addresses, the number of transactions, and number of circulation supply) have a significant effect on cryptocurrency prices. The study also finds that stable coins have comparable daily volatility as Gold, while only mature cryptocurrencies, such as PAXG, Bitcoin, Ethereum, BNB and LINK, demonstrate strong correlation with Gold. Bitcoin also showed a high positive time-series correlation with 24 of the 42 cryptocurrencies. Findings from this study provide important insights to investors, market analysts, regulators and other stakeholders on the marketisation and the store of value potentials of cryptocurrencies.

• Journal Article Type: Article
• Acceptance Date: Jul 3, 2023
• Online Publication Date: Jul 6, 2023
• Publication Date: Aug 31, 2023
• Deposit Date: Jul 10, 2023
• Publicly Available Date: Jul 27, 2023
• Journal: Technology in Society
• Print ISSN: 0160-791X
• Publisher: Elsevier
• Peer Reviewed: Peer Reviewed
• Volume: 74
• Article Number: 102320
• DOI: https://doi.org/10.1016/j.techsoc.2023.102320
• Keywords: Sociology and Political Science; Education; Business and International Management; Human Factors and Ergonomics
• Public URL: https://uwe-repository.worktribe.com/output/10925442
• Additional Information: This article is maintained by: Elsevier; Article Title: Network effects and store-of-value features in the cryptocurrency market; Journal Title: Technology in Society; CrossRef DOI link to publisher maintained version: https://doi.org/10.1016/j.techsoc.2023.102320; Content Type: article; Copyright: © 2023 The Authors. Published by Elsevier Ltd.