Abstract

This study examines the relationship between Bitcoin market dynamics and user activity on the r/cryptocurrency subreddit. The purpose of this research is to understand how social media activity correlates with Bitcoin price and trading volume, and to explore the sentiment and topical focus of Reddit discussions. We collected data on Bitcoin’s closing price and trading volume from January 2021 to December 2022, alongside the most popular posts and comments from the subreddit during the same period. Our analysis revealed significant correlations between Bitcoin market metrics and Reddit activity, with user discussions often reacting to market changes. Additionally, user activity on Reddit may indirectly influence the market through broader social and economic factors. Sentiment analysis showed that positive comments were more prevalent during price surges, while negative comments increased during downturns. Topic modeling identified four main discussion themes, which varied over time, particularly during market dips. These findings suggest that social media activity on Reddit can provide valuable insights into market trends and investor sentiment. Overall, our study highlights the influential role of online communities in shaping cryptocurrency market dynamics, offering potential tools for market prediction and regulation.

Introduction

The rapid growth and adoption of cryptocurrencies have attracted significant attention from investors, researchers, and policymakers. Among these digital assets, Bitcoin (BTC) [1] stands out due to its market dominance and influence on the broader cryptocurrency ecosystem. Understanding the factors that drive Bitcoin’s price and trading volume is crucial for stakeholders across various sectors. One such factor is the sentiment and activity within online communities, where discussions and opinions about cryptocurrencies are actively shared.

Social media platforms and online forums play a vital role in shaping the market dynamics of cryptocurrencies [2]. These platforms provide real-time information, opinions, and sentiment that can influence investor behavior and market trends. Several studies have explored the relationship between social media activity and cryptocurrency markets, highlighting the significance of sentiment analysis and user engagement in predicting price movements and trading volumes.

While previous studies have examined the relationship between social media sentiment and cryptocurrency markets, our research distinguishes itself by focusing on the specific community of r/cryptocurrency on Reddit. We leverage a combination of sentiment analysis and topic modeling on a comprehensive dataset of posts and comments, providing a detailed view of how online discussions evolve and correlate with Bitcoin market movements. By examining both sentiment and thematic content over time, our study offers nuanced insights into the interplay between social media activity and cryptocurrency market dynamics.

Results

4. Results
4.1. Bitcoin Market Data
Figure 1 illustrates the closing price of Bitcoin (BTC) over a two-year period, from 1 January 2021 to 31 December 2022. The data reveal significant volatility, characteristic of the cryptocurrency market. Notably, BTC reached an all-time high in November 2021, approaching USD 68,000, before undergoing a substantial correction throughout 2022. This decline reflects broader market trends, including macroeconomic factors and changes in investor sentiment. The closing price provides a critical foundation for understanding market dynamics and investor behavior during this period.

Abstract

The purpose of this paper is twofold: (i) to investigate some of the main issues surrounding the classification of digital currencies, and (ii) to identify the accounting practices and standards tied to digital currencies. This paper discusses two different types of digital currencies, including: central bank digital currencies (CBDCs) and privately issued cryptocurrencies such as Bitcoin. The findings of this study suggest that current accounting standards do not precisely cover the accounting treatment of digital currencies, even though the estimated value of market capitalisation of cryptocurrency in 2022 was USD 200 billion. This conceptual paper identifies the imminent need for an accounting standard to provide guidance on the identification, classification, measurement, and presentation of digital currencies. In the interim, existing accounting standards can be amended to incorporate digital currencies to avoid inconsistent global accounting approaches.

Introduction

Digital currency is an unparalleled technological advancement that has received increasing attention from researchers, investors, financial institutions and regulators. It is a mode of exchange that does not have a physical or tangible basis and exists purely in an electronic form. It should not, however, be confused with electronic money such as an online bank account, which shows the amount of cash that is held in a specified account and is linked to a physical currency. Many businesses are now pursuing digital currency as part of their wider financial management system, and this should be appropriately recorded in their financial statements. Despite the rapid increase in the amount and frequency of digital currency transactions, there is no clear guidance from the International Accounting Standards Board (IASB). The classification of digital currencies is a significant issue, and lack of guidance from standard-setters affects the accounting treatment of digital currencies and disclosures in financial statements.

Current literature shows the lack of focus on accounting treatment of digital currencies. In this conceptual paper, we aim to address this literature gap by examining accounting classification and treatment of transactions involving digital currencies. In addition, the paper aims to discuss a number of potential risks associated with the use of digital currencies and lack of clear classifications. Key questions around the classification, reporting and disclosure of digital currencies are addressed in this paper, including: In what asset class should digital currencies be classified as? and, is there an existing accounting standard for digital currency within the current IFRS standards?

Summary and conclusion

Digital currencies represent a genuinely new development in the landscape of financial payments. The main issue is that there are currently no clear or universal accounting standards or classifications for digital currencies. It is critical that blockchain technology, regarded as the underlying technology of most digital currencies, is fully understood, in order to be able to create relevant accounting and taxation standards as well as regulatory frameworks. Blockchain could therefore positively impact business models due to its unique characteristics, which address a number of key business issues. In addition, it offers the possibility of ‘triple-entry accounting’, in which accounting entries are cryptographically sealed by a third entry and made accessible to all third parties. Furthermore, blockchain accounting can reduce errors in disclosure and earnings management, improve the reliability and timelines of accounting information, and accordingly mitigate information asymmetry.

Accounting standard setters seem to be struggling to cope with the exponential growth in digital assets, which has led to a lack of consensus among them about how to treat these assets. This demonstrates that there is an urgent need for clear guidance to be issued by the standard-setters, as this absence has hindered the development of a universal accounting practice for digital currencies and has thus posed a number of challenges for authorities in relation to the classification and measurement of digital currencies.

Abstract

1. Introduction

2. China’s launching of a central bank digital currency

3. Cryptocurrency versus digital currency

4. Is the digital yuan a threat to the US dollar?

5. Conclusion

Declaration of Competing Interest

References

Abstract

     This article provides a detailed introduction to China’s launching of a digital currency. We conduct a comparative analysis concerning whether digital currency is a more stable and reliable currency than cryptocurrency and investigate whether a digital renminbi (or yuan) could replace the US dollar as a medium of exchange in international transactions. China has gained a first-mover advantage by rolling out a central bank digital currency (CBDC). But the outcome will depend on the US response as well as the future evolution of the US and Chinese economies. Most other articles on this topic focus on domestic use of the Chinese CBDC. But this study is unique in analyzing the prospects of a digital renminbi as a replacement for the US dollar in international commerce.

Introduction

     Over the past decade, the importance of cryptocurrency, especially Bitcoin, has rapidly increased. The crypto market has a great deal of potential, but its highly decentralized nature poses threats as well. The absence of a regulatory authority for monitoring and overseeing operations associated with such digital transactions makes cryptocurrency a high-risk investment. Because it is backed by only a handful of investors or by sentiment generated in the market, crypto has a volatile nature that foreshadows the instability and frailty it can introduce into the economic system as a whole (Aysan et al., 2021). Financial experts see cryptocurrency as the biggest challenge to the financial system and believe that immediate measures are needed to retain control of that system (Aysan et al., 2020). To maintain control of this system and limit any shift in it, several central banks have introduced a national digital currency (Auer et al., 2020). However, many countries still do not support the concept of a digital currency, as they see it as farfetched and claim that introducing one will only make the financial system more vulnerable to potential cybersecurity such as ransomware and financial stability threats (Nicole, 2021; Parn and Edwards, 2019).

Conclusion

     By rolling out its CBDC, China has undoubtedly gained a first-mover advantage. Its large population and the widespread familiarity with digital and cashless payment have helped the PBOC to offer its CBDC earlier than other countries. This first-mover advantage also puts China in a privileged position in determining the future direction of financial technologies. An early launch of the digital yuan would help China to internationalize its currency and to challenge the hegemony of the US dollar in the global financial system. China’s initial focus is international payments, but in the medium and long term, it wants to promote the RMB as an international reserve and investment currency as well. The successful internationalization of the digital yuan will require China to win the confidence of global users in the strength of the Chinese economy, financial system, and the functionality and security of the digital yuan. Despite these advantages, China also faces challenges in achieving these goals. The outcome depends on how the US responds and how the US and Chinese economies evolve in the future.

Abstract

     A Central Bank Digital Currency (CBDC) launched by the Bank of England could enable businesses to directly make electronic payments. It can be argued that digital payment is helpful in supply chain management applications. However, the adoption of CBDC in the supply chain could bring new turbulence since the CBDC value may fluctuate. Therefore, this paper intends to optimize the production plan of manufacturing supply chain based on a volatility clustering model by reducing CBDC value uncertainty. We apply both GARCH model and machine learning model to depict the CBDC volatility clustering. Empirically, we employed Baltic Dry Index, Bitcoin and exchange rate as main variables with sample period from 2015 to 2021 to evaluate the performance of the two models. On this basis, we reveal that our machine learning model overwhelmingly outperforms the GARCH model. Consequently, our result implies that manufacturing companies’ performance can be strengthened through CBDC uncertainty reduction.

Introduction

     Cryptocurrencies, represented by Bitcoin, have exhibited a significant impact on the current financial system (Easley et al., 2019, Zhang and Li, 2020, Huynh et al., 2021, Jin et al., 2021, Prat and Walter, 2021), especially after the outbreak of COVID-19 (Guo et al., 2021, Diniz-Maganini et al., 2021) and Fintech development (Le et al., 2021, Chaudhry et al., 2022). As a result, to confront and replace such an emerging private digital currency system, the Bank of England announced the launch of a Central Bank Digital Currency (CBDC), which served as a new form of digital currency issued by the Bank of England and can be used by households and businesses (BenDhaou and Rohman, 2018, Vessio, 2021).

     Since CBDC is still under development, copious of scholars advocate the adoption of blockchain techniques into CBDC systems, which can yield a number of benefits, such as increased payment safety and information transparency (Sun et al., 2017, Sethaput and Innet, 2021). Moreover, several countries have already signified the adoption of blockchain in their CBDC payment systems (Xu and Zou, 2021). On the other hand, bitcoin is an exceedingly representative digital coin based on the blockchain technique (Hughes et al., 2019, Jiang et al., 2022). Consequently, we use bitcoin to depict blockchain-based digital currency, which aligns with the future development trend of digital currency like CBDC.

Conclusion

     In summary, the main issue for this paper to accommodate is to deliver a sensible production plan based on the volatility clustering model regarding manufacturing companies with the application of CBDC in the supply chain. We unravel the fact that CBDC volatility can generate considerable effect on the supply chain management for manufacturing companies. Consequently, manufacturing companies formulate the production plan based on volatility clustering model can be helpful in the reduction of uncertainties from both CBDC and BDI. Our framework is based on the volatility clustering model, and we schedule company-related activities into low-volatility periods. Under such a framework, we can thereby reduce the overall uncertainty levels faced by manufacturing companies, as both CBDC and BDI uncertainties can be lessened through rescheduling.

     To capture the feature of CBDC volatility, we meld both BTC volatility and GBP volatility in the rescheduling model, where BTC represents the digital currency side of CBDC and GBP represents the sovereign currency side of CBDC. We first used the GARCH model as the volatility clustering model for production planning, where the model performance is inferior. We argue that if we can consider volatilities in both time series simultaneously and filter the noise from the time series, the model performance could be enhanced. Hence, we adopt the DBSCAN technique, which is a type of machine learning approach to achieve these two goals, and the performance actually has been improved. Thus, we can conclude that manufacturing companies’ production plans can be strengthened through uncertainty reduction. We combine BTC volatility with GBP volatility to reveal the CBDC volatility effect on SCM, and we schedule the production plan within those low volatility periods for both BTC and GBP accordingly. On this basis, our model verifies that the enhanced production plan can help companies to have better cost and revenue management, as it reduces costs and increases revenue.

Highlights

Abstract

Keywords

1. Introduction

2. Blockchain currency based on proof of work

3. Market price mechanism of a blockchain currency based on proof of work

4. Measures against positive demand shock

5. Measures against negative demand shock

6. Simulation

7. Discussion

8. Related work

9. Conclusions

Declaration of Competing Interest

References

Vitae

Abstract

Bitcoin and other similar digital currencies on blockchains are not ideal means for payment, because their prices tend to go up in the long term (thus people are incentivized to hoard those currencies), and to fluctuate widely in the short term (thus people would want to avoid risks of losing values).

The reason why those blockchain currencies based on proof of work are unstable may be found in their designs that the supplies of currencies do not respond to their positive and negative demand shocks, as the authors have formulated in our past work.

Continuing from our past work, this paper proposes minimal changes to the design of blockchain currencies so that their market prices are automatically stabilized, absorbing both positive and negative demand shocks of the currencies by autonomously controlling their supplies. Those changes are: 1) limiting re-adjustment of proof-of-work targets, 2) making mining rewards variable according to the observed over-threshold changes of block intervals, and 3) enforcing negative interests to remove old coins in circulation. We have made basic design checks and evaluations of these measures through simple simulations.

In addition to stabilization of prices, the proposed measures may have effects of making those currencies preferred means for payment by disincentivizing hoarding, and improving sustainability of the currency systems by making rewards to miners perpetual.

1. Introduction

Digital currencies such as BTC on Bitcoin [1] blockchain and Ether on Ethereum [2] blockchain are now well-known, and are accepted means for payment in some countries. However, these currencies are not ideal as methods of payment because of instability of their market prices. Their prices tend to go up in the long term, and to fluctuate widely in the short term. Therefore, people are incentivized to hoard those currencies, and would want to avoid risks of losing values by using them for payment. Stability of their market prices needs to be achieved if these currencies are intended to be used as monetary media instead of as investment products.

In the authors’ past work [3] (an improved version of the discussion paper with the same title), we have formulated the mechanism of instability by analyzing the economics of those blockchain currencies based on proof of work. We have also proposed measures to stabilize the market prices of such currencies. The contributions of this paper are refinements of the work as follows:

1. We have refined the formulation of the economic model of blockchain currencies based on proof of work, using abstractions closer to actual currency system designs, and
2. We have refined our proposed measures for stabilization of market prices of the currencies that would absorb both positive and negative demand shocks.

In contemporary era of technologies, blockchain has acquired tremendous attention from various domains. It has wide spectrum of applications ranging from finance to social services and has greatly influenced the emerging business world. Since, blockchain technology is getting embedded in the e-commerce services, the cryptocurrencies are gaining huge prevalence. Bitcoin and ethereum are few suchcryptocurrencies, which have utilized decentralised nature of blockchain. Blockchain can be considered as a distributed database system containing immutable ledgers, which are prone to attack by malicious users. Although, from the initial digital currency to the present smart contract, the utilities of blockchain have been harnessed, the innovative technology has to rely on cryptography for its security. There are several reports, which emphases on the vulnerabilities and security of blockchain, however, there is a lack of a comprehensive and methodical survey in both application and technical views. In this survey article, the authors cover various aspects related to blockchain including its taxonomies and the situations in which a particular category of blockchain should be applied. The authors also focusses on the structure of blockchain and the working of the ongoing transactions in the cryptocurrency network. In addition, the authors also specify various categories of consensus protocols, smart contracts, forks, techniques for generating the consensus. A detailed taxonomy of blockchain along with their features and related real-world applications is also discussed. In addition, existing key platforms of blockchain related to the cryptocurrencies, hyperledger and multichain are also discussed. Existing emerging vulnerabilities of blockchain related to the recent attacks on bitcoin and etherum is also presented along with the defensive methodologies and future trends in blockchain.

Introduction

The blockchain technology refers to the immutable public ledgers, which are constructed using decentralized techniques and generally do not contain a trusted authority. This remarkable technique was implemented for enabling the advent of cryptocurrencies in which the exchange of digital assets was take place in decentralized systems. Subsequently, a number of digital currencies has also emerged like Ripple, Bitcoin, Litecoin, Ethereum etc. Blockchain and the cryptocurrencies involved, permitted entities to accomplish economic transactions in the absence of a central authority.It further act as a third party for authentication, while presenting a data storage technique, which is available to all and are legitimate [1]. In addition to these features, this exceptional technology hampers any change in the publicized transactions [140-141]. In the year 1991, a chain of data, containing digital signature, was utilized as an automated ledger, which signed the documents in a way to assure that any adversary did not tamper the documents in the chain in any way [2]. This was the primary concept for the emergence of blockchain technology. This stupendous technology was first implemented for electronic currency in the year 2008 in a research article which discussed Bitcoin cryptocurrency [3].

Utilizing the empirical data of ten major cryptocurrencies, this article examines the investablitiy and role of diversification in cryptocurrency market, and evaluates the out-of-sample performance of commonly used asset allocation models across cryptocurrencies. We show that portfolio diversification across different cryptocurrencies can significantly improve the investment results. We also find robust evidence that the maximum utility model dominates the out-of-sample utility, although none of the models can consistently beat the naïve 1/N portfolio in Sharpe ratio.

Introduction

As the sharp increase in the trading volume of Bitcoin recently, the cryptocurrency market has drawn explosive attention from the media, financial industry and government institutions. Bitcoin is the first and largest decentralized cryptocurrency built upon blockchain technology, and has accumulated sufficient data of prices for empirical analyses. Therefore, quite a lot of academic research has been conducted on Bitcoin, such as market efficiency (Urquhart, 2016; Nadarajah and Chu, 2017; Bariviera, 2017; Vidal-Tomás and Ibañez, 2018), price volatility (Dyhrberg, 2016; Katsiampa, 2017), price clustering (Urquhart, 2017), and transaction cost (Kim, 2017). On the other hand, different kinds of cryptocurrencies rise immensely in the last couple of years, resulting in rapid expansion of market dimensions. As of April 2018, the number of cryptocurrencies has exceeded 1,500, with more than 500 having a market capitalization over 10 million dollars. Thus, the research on cryptocurrencies beyond Bitcoin has received considerable impetus in recent literatures. There are debates on the cryptocurrencies that they are mainly regarded as a new class of assets rather than traditional currencies (Glaser et al., 2014; Baek and Elbeck, 2015). Several important stylized facts of cryptocurrencies found recently are common in financial assets, such as leptokurtosis (Chan et al., 2017), heteroscedasticity (Gkillas and Katsiampa, 2018) and long-memory (Phillip et al., 2018). Moreover, researches on cryptocurrencies further demonstrate potential possibility of diversification in this emerging market for institutional and retail investors. First, a sufficient amount of cryptocurrencies have large market capitalization at million or billion level, while they usually provide lower transaction costs to individuals than one of the most efficient financial markets (Kim, 2017), which indicates ample liquidity. Second, there are cryptocurrencies that the dynamics are relatively isolated to the others (Corbet et al., 2018), which may offer diversification benefits from investors. Third, the variety of cryptocurrencies is still increasing, and therefore the cryptocurrency market has a growing place in diversification and portfolio management. However, despite the huge growth of the cryptocurrency market, research on the portfolio diversification of cryptocurrencies is rather limited. In this paper, we analyze the investability and role of diversification in the cryptocurrency market with applying six classical portfolilio selection models through an out-of-sample evaluation method. The out-of-sample method means the parameters involved in the models are estimated via a “rolling window” at each rebalancing date instead of using the entire sample (the in-sample method, which cannot reflect the real investment decisions). We compare the out-of-sample performance of different models using various evaluation criteria to understand which model performs the best in one or more specific aspects. We also analyze the portfolio performance by setting different transaction costs, rebalancing periods, as well as the risk aversion parameters, such that the results are robust and instructive for real investment.