Type and Duration
FFF-Förderprojekt, September 2024 until August 2026Coordinator
Innovative & Digital FinanceMain Research
Wealth ManagementDescription
How do various technological upgrades in cryptocurrencies affect their price, volatility, and trading volume, and what role does investor attention play in these reactions? A better understanding of these responses will help uncover the underlying technical risks associated with cryptocurrencies. This will be the focus of the proposed research project. The research will concentrate on the two largest cryptocurrencies, Bitcoin and Ethereum, which together constitute around 70% of the market capitalization, and their reactions to technological upgrades. Technological upgrades for Bitcoin can be categorized into hard forks, soft forks, peer services, API/RPC, applications, layer 2 solutions, and sidechains. Similarly, technological upgrades for Ethereum can be divided into hard forks, soft forks, networking, interface (API/RPC), ERC (applications), meta, layer 2 solutions, and sidechains. Reactions to these technology upgrades will be analyzed as response functions around the announcement and implementation dates. Through a multi-horizon analysis of these reactions, ranging from intraday to up to three months, we aim to gain a deeper understanding of cryptocurrency markets, their price dynamics, and long-term stability. This understanding is relevant not only for systematic and fundamental investors but also for regulators concerned with financial market stability.Practical Application
The main goal of this study is to gain a better understanding of how various technology upgrades affect the cryptocurrency markets. By exploring this, we aim to uncover a better understanding of the underlying technical risks for cryptocurrencies, as well as how the underlying technology for a coin might influence the markets reactions. With this project, we build on the current literature, addressing questions that have arisen and shedding light on reactions that have so far been unknown. The results are expected to contribute to the currently scarce academic literature on cryptocurrencies. Additionally, the following research will also help quantify market dynamics for cryptocurrencies, which should improve prediction models. The analysis of short-term reactions is particularly relevant for systematic investors, as insights in this regard can be used for automated trading strategies. Moreover, the additional analysis of long-term effects will add to the context of financial stability and low- to mid-frequency trading strategies. A longer-term analysis should also provide more insight into how to regulate the cryptocurrency market, suggesting that cryptocurrencies should be treated as a technology platform with differing underlying technology and uses. Ideally, this research will add to the current literature by suggesting that continuous technological updates ensure the long-term survival of a cryptocurrency, while also highlighting which specific types of technology updates ensure this survival. These contributions are of interest to market participants, financial institutions, regulators, and researchers in the field of cryptocurrencies.Reference to Liechtenstein
The mission of the Liechtenstein Business School is to increase Liechtenstein's competitiveness as a business location - among other things - through effective research. In addition, Liechtenstein publicly acknowledges that it sees great potential in blockchain technology for the economy and the financial sector and wants to actively expand the local token economy. From this university and economic policy orientations of Liechtenstein, the research question and its content design of the present study were derived. Thus, the study incorporates current strategic priorities of Liechtenstein. By brining to light the complex market dynamics of cryptocurrencies and gaining a better understanding of these new innovations for the financial industry, this study holds significant importance for the Principality of Liechtenstein.Keywords
Cryptocurrency, Bitcoin
