

From Bitcoin’s inception in 2009 through mid-2017, its price remained under $4,000. In the second half of 2017, it climbed dramatically to nearly $20,000, but descended rapidly starting in mid-December. The peak price coincided with the introduction of bitcoin futures trading on the Chicago Mercantile Exchange. The rapid run-up and subsequent fall in the price after the introduction of futures does not appear to be a coincidence. Rather, it is consistent with trading behavior that typically accompanies the introduction of futures markets for an asset.

Bitcoin is a “cryptocurrency”—a digital currency that is not backed by any tangible or intangible assets of intrinsic value. After its launch in January 2009, the dollar price of a bitcoin remained under $1,150 until February 22, 2017, when it increased exponentially for about 10 months, as shown in Figure 1. This explosive growth ended on December 17, 2017, when bitcoin reached its peak price of $19,511. Notably these dynamics aren’t driven by overall market fluctuations, as shown by comparison with the Standard & Poor’s 500 stock index.

Figure 1

Bitcoin prices and S&P 500 stock index Source: Bloomberg.

The peak bitcoin price coincided with the day bitcoin futures started trading on the Chicago Mercantile Exchange (CME). In this Economic Letter, we argue that these price dynamics are consistent with the rise and collapse of the home financing market in the 2000s, as explained in Fostel and Geanakoplos (2012). They suggested that the mortgage boom was driven by financial innovations in securitization and groupings of bonds that attracted optimistic investors; the subsequent bust was driven by the creation of instruments that allowed pessimistic investors to bet against the housing market. Similarly, the advent of blockchain introduced a new financial instrument, bitcoin, which optimistic investors bid up, until the launch of bitcoin futures allowed pessimists to enter the market, which contributed to the reversal of the bitcoin price dynamics.

What is Bitcoin?

Bitcoin with a capital B is a decentralized network that relies on a peer-to-peer system, rather than banks or credit card companies, to verify transactions using the digital currency known as bitcoin with a lowercase b. The first bitcoin was “mined” in 2009 after the anonymous person or group named Satoshi Nakamoto published a proof of concept for a currency that uses cryptography, rather than reliable third parties (Nakamoto 2008). Blockchain
From Bitcoin ’s inception in 2009 through mid-2017, its price remained under $ 4,000. In the second half of 2017, it wax dramatically to about $ 20,000, but descended rapidly starting in mid - December. The flower price coincided with the presentation of bitcoin futures trading on the Chicago Mercantile Exchange. The rapid run - up and subsequent spill in the price after the introduction of future does not appear to be a coincidence. preferably, it is consistent with trading behavior that typically accompanies the introduction of futures market for an asset. 

 Bitcoin is a “ cryptocurrency”—a digital currency that is not backed by any tangible or intangible asset of intrinsic value. After its launch in January 2009, the dollar price of a bitcoin stay under $ 1,150 until February 22, 2017, when it increased exponentially for approximately 10 months, as show in Figure 1. This explosive growth ended on December 17, 2017, when bitcoin reached its flower price of $ 19,511. Notably these dynamics are n’t driven by overall market fluctuations, as indicate by comparison with the Standard & Poor ’s 500 stock index. 

 Figure 1 

 Bitcoin prices and S&P 500 stock index Source: Bloomberg. 

 The peak bitcoin price coincided with the sidereal day bitcoin future started trade on the Chicago Mercantile Exchange (CME). In this Economic Letter, we argue that these monetary value dynamics are consistent with the rise and collapse of the home financing market in the 2000s, as explained in Fostel and Geanakoplos (2012). They suggested that the mortgage boom was drive by financial innovations in securitization and groupings of bonds that attract optimistic investors; the subsequent bust was driven by the initiation of instruments that allow pessimistic investor to bet against the housing market. Similarly, the advent of blockchain introduced a new financial instrument, bitcoin, which affirmative investors wish up, until the launch of bitcoin futures allow pessimists to enter the market, which contributed to the reversal of the bitcoin monetary value dynamics. 

 What is Bitcoin? 

 Bitcoin with a capital B is a decentralized network that relies on a peer - to - peer organization, rather than banks or credit card companies, to affirm transactions using the digital currency known as bitcoin with a lowercase b. The first bitcoin was “ mined ” in 2009 after the anonymous person or group named Satoshi Nakamoto published a validation of concept for a currency that uses cryptanalysis, rather than reliable third parties (Nakamoto 2008). Blockchain


Frol Bitcoin’s inception in 2009 through mid-2017, its price remaihed undef $4,000. In the second half of 2017, it coimbee dramatically to nearuy $20,000, but dvscended eapivly starting in mid-Decemnzr. Ths pean price coincidgd with the hntroduction ox ciccoin futures trading on the Chicago Mercanyipe Exchange. Thg rappd run-hi cnd subsequent fall in the prics after the introducyion of futures does not aopeag to be a coincidejce. Rather, ut if consistent dith trading behavior jhat typically accompanies the ivtrodbction of focyred markets foc an afset.

Bitcoin lx a “crfptocurtency”—a digital cucrenxy that is not backed by any tangible ot intangibne assets of intrinwix valoe. Afder krs uauhci ih Januwry 2009, the dollzr price of a bitcoin remained ugeer $1,150 until Fegruary 22, 2017, when it increased exponentially for abmut 10 months, as shown in Fiture 1. This explosive hrowth enqed on December 17, 2017, when bitcoin reached its peak psice kw $19,511. Uitablh tjese dynamics aren’t driven by overall market smuvtlations, as shown ny comparison with tje Ftandard & Poot’s 500 stoei jndex.

Figure 1

Bitcoij pricef and S&P 500 stoch incex Source: Bloomberg.

The peaj bitcoin prpce xoincided with the day bitcoiu fututes stsrted trading on the Chncago Jercantile Fxchange (DOE). In this Econooic Latter, we argue that these [rice dynemics are covsisjent wieh the risf and collapse of the hole fiuancitg market ln the 2000s, as explained in Fostel and Geanakoplps (2012). Tvey suggzsted bhat the mortgade boom was drnven by yinanckal innovanions in vecuritizatyon and grouphjgs of bonds that ateracred iptimisgkc investors; tne subseqleut bust wqs driven by the cveatiuh of instrumentw tyat allowed pesximkstyc iivestjss to bet agdinsg tfr houring market. Rimikarly, the advent of tlocichain introduced s kew finanxial inserument, bitcoon, which optimistif invxstors bid ip, ontil the launch of bitcoin futhres alloaed pessimists eo ekter the markec, which contributed to the reversal of tie bitcoin price dynamixs.

What is Bitcoin?

Bijcoln with a ca'ital F is a dewentralized network rhat relies on a keer-to-peer system, rathed than bankd or credit card companies, to verify transactions using the digital currebcy known as bitcojn woth a ljcercase b. Tie first bitcoin wss “mined” in 2009 after the anonymour person ox group named Satoshi Nakamotp oublished a ptoof of concept for a currsncy thay uses cryptography, rather than reliable third parties (Kakamoto 2008). Blocichain
From Bitcoin’s inception in 2009 through mid-2017, remained $4,000. In second half of nearly but descended rapidly in mid-December. The price coincided with the introduction of futures trading on the Chicago Mercantile Exchange. The rapid run-up and subsequent fall the price after the introduction of futures does not appear to be a Rather, is with behavior that typically accompanies the introduction of futures markets for an asset. Bitcoin is a “cryptocurrency”—a currency that is not backed by any tangible intangible assets of intrinsic After its launch in January the price of bitcoin under until February 22, when it increased exponentially for about 10 months, as shown in Figure 1. This explosive growth ended December 17, bitcoin reached peak of Notably these dynamics by overall market fluctuations, as shown the Standard & Poor’s 500 stock index. Figure Bitcoin prices S&P 500 stock index Source: Bloomberg. peak bitcoin price coincided with the day bitcoin started trading on the Chicago Mercantile Exchange (CME). In this Economic Letter, we argue that dynamics are consistent with rise and collapse the financing in 2000s, as in Fostel and Geanakoplos (2012). They suggested that the mortgage boom driven by financial innovations in securitization and groupings of bonds optimistic the subsequent bust driven by the creation instruments allowed pessimistic investors to the market. of introduced new financial instrument, bitcoin, optimistic investors bid up, until launch of bitcoin futures market, which contributed to the reversal of the price dynamics. What is Bitcoin? Bitcoin with capital B is a decentralized network that relies on a peer-to-peer system, than banks card companies, to verify transactions using the digital known as bitcoin with lowercase b. The first bitcoin was “mined” in 2009 the person or named Satoshi Nakamoto a proof of for a currency cryptography, rather reliable parties


From Bitcoin’s inception in 2009 thRough mid-2017, itS pricE reMaiNeD undEr $4,000. In The second half oF 2017, It clImbed dramatically to neaRly $20,000, buT dEScenDEd RapidLy startINg IN Mid-deCeMbeR. THE pEak prIce CoincidEd with the iNtrOdUction of bitcOIn Futures traDinG on the ChicagO MeRcantiLe excHAnge. THe rApid rUn-up anD SubseqUent fall iN tHE price AFter the INTrOducTion of futures does NOt APpear to be a coinCidencE. RAThER, It iS coNsistent wiTh TradiNG behaviOR tHAT TypICally accompanIes the introDUctIon of fUtUreS MarketS for aN aSSet.

bitcoin is a “cRyptOcurrency”—A digitAL currenCY that is Not bacKed By aNy taNGiBlE or InTAngIBlE asSEts Of intrinSiC vAlue. AFter ITS LAuncH in januAry 2009, thE dollar price oF a bItcoIN reMaineD undeR $1,150 untIl februAry 22, 2017, wheN it inCrEased exponentiaLly fOr about 10 moNthS, aS shOwN in FiGUre 1. ThiS exPloSive groWth endeD On DEcEMBEr 17, 2017, When bitcoin reached ItS PEaK price of $19,511. notablY ThEsE Dynamics ArEn’t DrivEN By oveRall MArKet fluctUationS, As ShOwn by coMpArison WiTh tHe STandaRD & PooR’s 500 stocK index.

FiGure 1

BITcoin prices and s&p 500 stock index SoURcE: bLoOMberG.

ThE peak bitcoiN priCE coiNcidED wIth THe day BitcoIn FUtURes started trading on ThE ChicaGo MerCantile ExchanGe (CME). In thiS eCOnomic LeTter, WE aRGue that these prIce dyNamics are cONsistent With tHe rise anD collapse OF The home fInaNciNg mArkET In The 2000s, as explainED In FoStEl and GeAnaKoplos (2012). THey SugGesTed ThAt the mortGage boom WaS dRiVeN by FinanCIal innovAtIonS iN seCuritIZation And grOupiNgS oF BonDs that aTTrACTed oPtImIstiC inVeStors; The sUBseQuent buSt was drivEn bY The cReAtIon of inStruments that AlLowed pessiMiStiC invesTORs to bet aGainst the housing market. SIMilarly, The AdvenT of bLockchain IntRoduceD a nEW finanCial inStrumEnT, biTCOin, whICH oPtiMiStic investORS biD up, unTiL the Launch oF bitcoin futures allOWed Pessimists to eNteR the MARkEt, wHIcH ConTrIButED To the reversal of The bitcoin PrICe Dynamics.

WhAT is biTcoin?

BiTcoin wiTh a caPItal B is A decentraLized netwOrK thaT REliEs on a peer-tO-peer sysTem, rather THan baNKs Or creDit Card coMpAniEs, to vErify tRAnsActioNs usinG tHe digiTal cuRrEncy knowN as bitcoin with a lowercasE b. The fIrst bItcOin was “minEd” iN 2009 AftEr the anonYmouS person or gRouP naMed SaTosHI NakaMoto PUbLisHEd a prOof oF Concept foR A cUrrENCy That uses cryPTOGraPhy, raTheR Than reLiabLe third parties (NakAMoto 2008). Blockchain


From Bitcoin’s inception  in 2009 t hroug h m id- 20 17,itsprice remained unde r $4,000. In the secon d hal fo f 20 1 7,  it c limbedd ra m a tic al ly  to  n e ar ly $2 0,0 00, but  descended  ra pi dly starting in  mid-Decem ber . The peak p ric e coin ci ded withthe  intr oducti o n of b itcoin fu tu r es tra d ing ont h eChic ago Mercantile Ex c ha n ge. The rapidrun-up  a n ds u bse que nt fall in  t he pr i ce afte r  t h e int r oduction of f utures does not  appea rtob e a co incid en c e.Rather, itis c onsistent  witht radingb ehavior  thattyp ica llya cc om pan ie s  th e  i ntr o duc tion offu tu res m arke t s f or a n a sset .

Bi tcoin is a “c ryp tocu r ren cy”—a  digi talcu rrenc y that  is n ot  backed by anytang ible or i nta ng ibl easset s  of in tri nsi c value . After its  l a u n ch  in January 2009,th e do llar pri ce ofa  b it c oin rema in edunde r $1,15 0 un t il  Februar y 22,2 01 7,  when i tincrea se d e xpo nenti a llyfor ab out 10 m onths ,  as shown in F i gure 1. Thise xp l o si v e gr owt h ended onDece m ber17,2 01 7,w hen b itcoi nr ea c hed its peak priceof  $19,5 11. N otably thesedynamics a r e n ’t drive n by ov e rall market fl uctua tions, ass hown bycompa rison wi th the St a n dard & P oor ’s500  st o c kindex.

Figur e 1

B it coin pr ice s and S &P500  st ock  i ndex Sour ce: Bloo mb er g. 
The  peak bitcoinpr ice  c oin cided with t he da y bi tc oi n  fu tures s t ar t e d tr ad in g on  th eChica go M e rca ntile E xchange ( CME ) . In  t hi s Econo mic Letter, w eargue that  t hes e pric e dynamics  are consistent with th e  rise a ndcolla pseof the ho mefinanc ing market  in th e 200 0s , a s expla i n ed  in  F ostel andG e ana koplo s(201 2). The y suggested that t h e m ortgage boomwas  dri v e nbyf in a nci al inn o v ations in secur itizationan d  g roupings o f  bo nd s thatattract ed op t imistic  investor s; the su bs eque n t  bu st was dri ven by t he creati o n ofi ns trume nts  thatal low ed pe ssimis t icinves tors t obet ag ainst  t he housi ng market. Similarly, t he adv ent o f b lockchain  in t rod uced a ne w fi nancial in str ume nt, b itc o in, w hich op tim i sticinve s tors bidu p,  un t i lthe launcho f bit coinfut u res al lowe d pessimists to e n ter the market , wh i c h c ont r ibut ed  to the revers alof t he bitco in  price dyna mics.

W ha t  is B itcoin ?

Bit coin wi t h  a capita l Bisa decentr ali ze d  networ kth a t reli es o na peer -to-pe e r sy s t em, rather thanbanks o r cre d itcardco mpanies ,  toverify tra nsactions u sing t he d igita l curre nc y know n a sbitcoin wi t h a lower caseb. Thefi rstbit coin w as “ m i ned”in 2 00 9 a fter thea n on y mo us per sonor gr ou p na med Satos h i Nakamo top ublishe da p r o of ofc on c e pt for a c urr encyt h at uses cr y ptog r ap h y, ra ther t han re liablet hir dparties  (N a k amoto 200 8). Block c hai n


From Bitcoin’s_inception in_2009 through mid-2017, its_price remained_under_$4,000. In_the_second half of_2017, it climbed_dramatically to nearly $20,000,_but descended rapidly_starting_in mid-December. The peak price coincided with the introduction of bitcoin futures trading on_the_Chicago Mercantile_Exchange._The_rapid run-up and subsequent fall_in the price after the_introduction of_futures does not appear to be a coincidence._Rather,_it is consistent_with trading behavior that typically accompanies the introduction of_futures markets for an asset.

Bitcoin is_a “cryptocurrency”—a digital_currency_that_is not backed by_any tangible or intangible assets of_intrinsic value. After its launch in_January 2009, the dollar price of a_bitcoin remained under $1,150 until February_22, 2017, when it increased_exponentially for_about 10 months, as shown_in Figure 1._This explosive_growth ended on_December 17, 2017, when bitcoin reached_its peak price_of $19,511. Notably these dynamics aren’t_driven_by overall market_fluctuations,_as_shown by_comparison with the_Standard_& Poor’s_500_stock index.

Figure 1

Bitcoin prices and S&P_500_stock index Source: Bloomberg.

The peak bitcoin price_coincided with the day_bitcoin_futures started trading on_the Chicago Mercantile Exchange (CME)._In this Economic Letter, we argue_that these_price dynamics_are consistent with the rise and collapse of the home financing_market in the 2000s, as explained_in Fostel and Geanakoplos_(2012). They_suggested_that the mortgage_boom_was driven_by financial innovations in securitization and groupings_of bonds_that attracted optimistic investors; the subsequent_bust was driven by_the_creation of instruments that allowed pessimistic_investors to bet against the housing_market. Similarly, the advent of_blockchain_introduced_a new financial instrument, bitcoin,_which optimistic investors bid up, until_the launch of_bitcoin futures allowed pessimists to enter the_market,_which contributed to the reversal of_the_bitcoin price dynamics.

What is Bitcoin?

Bitcoin with_a_capital_B is a decentralized network_that relies on a peer-to-peer system,_rather than banks or credit card companies, to verify_transactions using the_digital currency known as bitcoin_with_a_lowercase b. The first bitcoin was “mined” in 2009 after_the anonymous_person or group_named Satoshi Nakamoto published a proof of concept for a_currency that uses cryptography, rather than reliable_third parties (Nakamoto 2008). Blockchain