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Bitcoin and Cascades

Article:  https://www.bloomberg.com/news/articles/2017-11-13/bitcoin-plunges-29-from-record-high-as-civil-war-intensifies

This article describes the volatility of bitcoin and its various market plunges from record highs.  Since November 8th, Bitcoin’s value has grown from nearly $38 billion to $110 billion.  With advents of new technologies such as Bitcoin cash (supporting eight times more data than the cryptocurrency), investing in Bitcoin is more based off of speculation rather than analysis.  The article describes Bitcoin being extremely volatile and changes drastically each time a new set of relation information is leaked about the Cryptocurrency.  For instance the article details, “While bitcoin cash has been around for months, it saw limited support as the community awaited last week’s technology upgrade for the original bitcoin, which promised similar features.”  It appears Bitcoin’s price is a mere reflection of the public’s reflection on Bitcoin.

This directly relates to information cascades.  Looking at the chart in the article, each time a piece of information comes out about Bitcoin, the price either plunges or surges.  However, this chance in price is not immediate–it can take up to a week to reach its local minima.  In the context Networks, consider the network of people who are interested in Bitcoin.  As a new piece of information emerges, it travels across local bridges (new information is generally propagated through local bridges).  This time delay is probably a major factor to determine the length of time it takes for Bitcoin to reach its minima.  Furthermore, Bitcoin users are generally friends with each other, and from our model, those with strong ties to each other often exhibit the same behavior (cascade).  Thus, if a new piece of information about Bitcoin emerges into a friend group across a local bridge, it is likely that everyone will adopt this behavior.  In fact, Bitcoin’s volatility is reasonably related to the threshold value, q, for cascading behavior.  Since Bitcoin is extremely volatile, it probably has a q value of near zero.  That is, once a new piece of information emerges about Bitcoin into a social network, it is likely to quickly propagate to everyone into that friend group, bringing down the market price.  The reverse is true for a positive piece of information.

Additional Article:  https://economictimes.indiatimes.com/markets/stocks/news/bitcoin-hits-record-just-days-after-a-29-plunge/articleshow/61683005.cms [This is an interesting article with more recent information about Bitcoin’s recent plunge]

 

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