[2L5-GS-13] AI application: Finance (2)

[2L5-GS-13-03] Bitcoin Price and difficulty

〇Yoshihiko Ichikawa¹, Ryuta Sakemoto¹ (1. YJFX, inc.)

Keywords:Bitcoin, difficulty, Time-Series model, cryptocurrency, mining

In this paper, we analyze a relationship between Bitcoin Difficulty and Bitcoin prices. A consensus algorithm called Proof of Work (POW) is used to ensure the trust of the entire network. Rewards are set for mining miners in order to maintain the mechanism. These rewards depend on Bitcoin Difficulty which is related to the number of miners and mining innovation. It is said that Bitcoin prices and Bitcoin Difficulty have a positive correlation in medium and long terms, but no analysis has been conducted in a short term. To explore this relationship, this paper constructs a model that represents the interdependence of Bitcoin prices, Bitcoin Difficulty, Bitcoin turnover, and other financial asset prices. Our empirical results showed that a change in Bitcoin Difficulty had a significant impact on that in Bitcoin prices. On the other hand, changes in the other financial asset prices were not associated with those in Bitcoin prices.