What determines cryptocurrency prices: VAR and VECM approach

Abstract

The 2008-2009 Financial crisis, caused instability and uncertainty in the traditional financial system. People lost their trust towards the monetary system and were searching for better alternatives that could provide them with financial freedom and deregulation. The cryptocurrency network was the main alternative solution for many individuals. The benefits of the network being decentralised, secure and transparent brought many people together into one digital world. Individuals involved in this market are the ones who have the power to influence cryptocurrency prices and take control of their financial position. Examining how the prices of the three most popular cryptocurrencies, Bitcoin, Ethereum and Ripple are determined is thus essential. In this study, by using demand, supply and additional indicators, we are able to determine the price determinants of those three cryptocurrencies, in the short run and long run. Those three cryptocurrencies were created for entirely different purposes and entail different characteristics, thus our study provides the distinct results that define each one of them.