Evolution of bitcoin as a Financial Asset

The cryptocurrency market debate resumed in 2020 with renewed vigour as the price of Bitcoin surpassed late 2017 highs. This study aims to analyse possible factors of Bitcoin’s pricing at various cryptocurrency market development stages — before the 2017 price bubble, after and during the COVID-19 pandemic. The main method of analysis is a generalized autoregressive conditional heteroskedasticity model with conditional generalized error distribution (GARCHGED). Two groups of indicators are used as possible factors related to the Bitcoin dynamics. The first group consists of various quantitative indicators directly related to Bitcoin (the so-called internal factors) — the volume of exchange trade, the volume of transactions in the Bitcoin blockchain, the number of new and active wallets, hash rate, the sum of fees paid in the blockchain, as well as the dynamics of Google Trends search queries. The second group is the return on various financial assets — stock and bond indexes, commodities, and currency markets. The results of the analysis demonstrate the absence of a stable correlation between any of the factors under consideration and Bitcoin returns in all the periods that we focus on. In the period before the 2017 price bubble, the internal factors and Bitcoin returns showed generally co-directional dynamics, but the situation changed in 2018. In early 2021, the correlation between Bitcoin and traditional financial assets returns has increased significantly. We can conclude that Bitcoin is becoming a popular means of diversification as a high-risk asset, which, however, follows the pattern of a speculative bubble at the beginning of 2021. The increased demand for the need to invest in Bitcoin using various exchange-traded instruments (ETFs for cryptocurrencies) may soon lead to a further increase in the price of this cryptocurrency if such instruments are registered on the exchange.

Reflections on the Mechanisms to Protect Against Formation of Price Bubble in the EU ETS Market

The rapid increases of European Union Allowance (EUA) prices and very high market volatility, resulting mainly from the growing role of speculative entities, can contribute to forming a price bubble. This may cause the market instability and could have a implications on planning future reduction investments by European Union Emissions Trading Scheme (EU ETS) participants. That is why they need some kind of ‘safety valve’, an effective EU ETS instrument, which can be triggered when the situation requires it. The purpose of this paper is to examine whether the current legislative rules of the EU ETS protect against sudden EUA price fluctuation and the risk of formation of a price bubble. This paper tries to assess the potential EUA price bubble and to review of existing instruments within the EU ETS, analysing their efficiency using different assumptions and identify channels of possible other market instruments to efficiently prevent the carbon market instability caused by rising EUA prices and market speculation. We argue that the European Commission (EC) does not currently have an appropriate market instrument to respond to the EUA price fluctuation. Moreover, there are some legislative loopholes in the system, which may encourage market speculators to influence EUA prices, and there is need to introduce better market safeguards.

Identification of house price bubbles using robust methodology: evidence from Polish provincial capitals

This article aims to check whether there has been a price bubble in the Polish major housing markets in recent years. To accomplish this goal, the log price-to-rent ratios in Polish provincial cities were analysed. In order to avoid incorrect conclusions, the log price-to-rent ratio using the instrumental variable estimation and ordinary least squares methods was decomposed into two components: fundamental and non-fundamental. The latter was then examined using the Phillips, Shi, and Yu procedure to detect explosive and downward movements. The results of the study showed that, in general, over 2011, actual log price-to-rent ratios in the analysed cities were below their fundamental values, i.e., a negative price bubble existed. However, more or less since the beginning of 2013, the surveyed markets have seen an increasing level of the non-fundamental component of the index under study, and its particularly explosive movements are visible in the first quarters of 2014. Finally, this analysis indicated future research directions and study implications for Polish policy-makers, housing investors, and households.

Are Real Estate Prices Evolving into an Asset Price Bubble?

The development of real estate prices is of extraordinary importance for the fi nancial and economic system, as undesirable developments could endanger fi nancial stability – as seen in the fi nancial crisis of 2008 and 2009. This applies not only to speculators, but also to private households, which have to borrow to pay the purchase price. The market has been “fueled” in particular by the monetary policy of the central banks – expansion of the money supply and low interest rates. Investors are looking for investment opportunities due to the money glut, and the real estate market still promises a return. Furthermore, many people looking to build are willing to go into debt to buy a property. This demand ultimately has a driving eff ect on real estate prices. The aim of this paper is to compare and analyze the development of real estate prices in the most important OECD countries with those of Germany. A model of real estate prices is presented, which takes into account the most important indicators and provides information on when a price bubble exists. The model shows that asset price bubbles can be identified in some OECD countries. In Germany, on the other hand, there are only signs of a price bubble in a few major cities. Since private debt is low, it does not seem to be a problem across the board in Germany. A general problem remains with regard to the timely detectability of price bubbles.

The Political Economy of Institutional Corruption in Africa: The Case of the 1996–97 Tanzania Coffee Crisis

This article argues that institutional corruption is the central governance dilemma in Africa by examining the causes, outcome, and origins of the 1996–97 Tanzania coffee crisis. It shows how the growth and crash of a coffee price bubble became a harbinger for defining corruption as historically embedded institutional tendencies and advantages, instead of acts of individual malfeasance. Institutional corruption highlights political gains from the use of public resources in the form of political influence over producer prices, concentrated market power, and centralized policymaking for the wealthy and politically connected, as opposed to personal gains.

Asset prices - An Austrian Perspective

How asset prices should be taken into account in monetary policy is a controversial question in mainstream discussion. These mainstream positions can be differentiated into two broad perspectives: the proactive and the reactive views. The proactive view advocates pricking the asset price bubble, while the reactive view argues against monetary policy targeting asset prices. In this article the relation between asset prices and the Austrian business cycle theory is examined. Following this, a critique of both the proactive and reactive views is provided and implications for monetary policy are deduced. Key words: Austrian Economics, Business Cycles, Asset Prices, Central Banks and their Policies. JEL Classification: B53, E32, E58.

Bitcoin and the South Sea Company: A comparative analysis

This paper examines historical Bitcoin price data together with the price data of a well-known and generally accepted historical asset price bubble (the 1720 South Sea Bubble) with the aim of identifying possible similarities. In order to find empirical evidence of speculative bubble tendencies, the article analyses distribution moments and autoregressive models of time series of both assets. Results show that historical daily prices of both assets—taking into account one year before and one year after the maximum price level—clearly show the two phases of bubble expansion and subsequent crash. Furthermore, various similarities between the South Sea Bubble and Bitcoin can be found in descriptive statistics, such as mean of return, standard deviation, and skewness. Statistical tests also show several explosive moments in the time series of the South Sea Company and Bitcoin returns, which implies that both assets exhibit more than one financial bubble.

An examination of house price bubble in the real estate sector: the case of a small island economy – Fiji

Purpose This paper aims to assess the equilibrium house price in the city of Suva (Fiji) and to analyse the house price bubble in the Fiji housing market. Design/methodology/approach This paper adopts a time series approach to determine the presence of house price bubbles in Fiji over the period from 1988 to 2018. Findings The findings suggest that real income, land cost, building material price, inflation rate, volatility, household size and wealth have a positive impact on house prices, whereas user cost of capital and political disturbances have a negative impact. The findings further indicate that the Fijis’ housing market does not constitute any house price bubble. Practical implications This paper draws policy implications for a small developing state (Fiji) and other similar economies. Originality/value The price bubble in the Fiji housing market is analysed for the first time. This paper develops a comprehensive empirical approach to assess the equilibrium-housing price in Fiji.

The case of housing

This chapter studies the case of housing. The figure of the 'investor-subject', which is key to the critique of financial inclusion policy, highlights the importance of considering the special role of housing for at least two reasons. First, housing is arguably the most important investment that is made by investor-subjects. For example, Individual Development Accounts (IDAs) are supposed to be used for three main aims, namely, paying for training, starting a business, or putting down a deposit on a home. In fact, critics of asset-based welfare claim that this specific policy agenda is focused mainly on boosting home ownership and so there is now a literature that is dubbed 'housing asset-based welfare'. Second, investors often have to borrow on mortgage markets to pay for a home. This highlights that 'borrowing to invest' is a key part of an investor-subject approach. Critics say that 'borrowing to invest' led to record levels of personal indebtedness and fuelled a house price bubble that was one of the triggers for the global financial crisis of 2007–08. For critics, this shows that the financial inclusion agenda contributed directly to the instability within the economy. The chapter argues that financial inclusion need not necessarily lead to a house price bubble and instead might be used to open up debates about the nature of home ownership.