Introduction
Born from the foundations of cryptographic principles, Bitcoin emerged as the first decentralized cryptocurrency, conceptualized by Satoshi Nakamoto in November 2008 and launched on January 3, 2009. Over the past 14 years, the cryptocurrency ecosystem has experienced exponential growth, fostering innovation and contributing significantly to the evolution of digital economies. By May 2021, the total market capitalization of cryptocurrencies peaked at $2.4 trillion, with nearly 6,000 digital assets in circulation. Among these, 77 cryptocurrencies boasted individual market caps exceeding $10 billion, while over 1,600 were valued above $1 million.
Despite ongoing debates about whether cryptocurrencies should be classified as commodities or securities, their role as influential investment assets is undeniable. This study examines the price determinants of Bitcoin and Ethereum—the two most prominent cryptocurrencies—through a dual-lens framework combining financial asset analysis and behavioral finance principles.
Research Framework
Macroeconomic Factors
Deflationary Issuance Mechanism:
- Analyzes how Bitcoin’s capped supply (21 million) and Ethereum’s post-Merge issuance dynamics impact long-term valuation.
Federal Reserve Monetary Policies:
- Investigates correlations between interest rate adjustments, quantitative easing, and crypto market liquidity.
Regulatory Policies (U.S. & China):
- Evaluates market reactions to regulatory shifts, including bans on mining/trading and taxation frameworks.
Microeconomic Factors
Cryptocurrency Utility:
- Assesses the role of decentralized applications (dApps), smart contracts (Ethereum), and adoption metrics.
Behavioral Finance Effects:
- Explores momentum trading, FOMO (fear of missing out), and herd behavior in price volatility.
Methodology
This study employs a hybrid analytical approach:
- Quantitative Tools: Time-series regression, correlation analysis, and statistical interval testing.
- Qualitative Models: Behavioral finance frameworks like the momentum effect model.
- Multi-Factor Pricing Model: Integrates identified variables to predict price trajectories.
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Key Findings
| Factor | Impact Direction | Magnitude | Notes |
|-------------------------|------------------|-----------|--------------------------------|
| Fed Rate Hikes | Negative | High | Stronger effect on altcoins |
| Regulatory Clarity | Positive | Moderate | Varies by jurisdiction |
| Ethereum dApp Growth | Positive | High | Tied to network activity |
FAQs
Q1: How does Bitcoin’s halving event affect its price?
A: Historically, halvings (every 4 years) reduce new supply, creating upward pressure post-event due to scarcity.
Q2: Why is Ethereum more sensitive to regulatory news than Bitcoin?
A: Ethereum’s smart contract functionality ties it closer to securities laws, amplifying regulatory risks.
Q3: Can behavioral biases explain crypto market crashes?
A: Yes—panic selling and overleveraging often exacerbate downturns beyond fundamental triggers.
Conclusion
This paper establishes a robust multi-factor model highlighting the interplay between macroeconomic policies, technological utility, and investor psychology in shaping cryptocurrency valuations. As the digital asset landscape matures, these insights offer critical tools for investors and policymakers alike.
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