Price Fluctuations and the Use of Bitcoin: An Empirical Inquiry

Michal Polasik, Anna Iwona Piotrowska, Tomasz Piotr Wisniewski, Radoslaw Kotkowski, and Geoffrey Lightfoot
International Journal of Electronic Commerce,
Volume 20, Number 1, Fall 2015, pp. 9-49.


Over recent years, interest has been growing in Bitcoin, an innovation that has the potential to play an important role in e-commerce and beyond. The aim of our paper is to provide a comprehensive empirical study of the payment and investment features of Bitcoin, and their implications for the conduct of e-commerce. Since network externality theory suggests that the value of a network and its take-up are interlinked, we investigate both adoption and price formation. We discover that its returns are driven primarily by Bitcoin’s popularity, the sentiment expressed in newspaper reports on cryptocurrency, and total number of transactions. The paper also reports on the first global survey of merchants who have adopted this technology, and we model the share of sales paid for with this alternative currency, using both ordinary and Tobit regressions. Our analysis examines how country-, customer-, and company-specific characteristics interact with the proportion of sales attributed to Bitcoin. We find that company features, use of other payment methods, customers’ knowledge about Bitcoin, and the size of both the official and unofficial economy are significant determinants. The results will be of interest to traders who seek to understand factors driving prices and will help to inform vendors as to the most favorable circumstances for adopting the currency for online transactions.

Key Words and Phrases: Bitcoin, cryptocurrency, digital money, electronic money, emerging technologies, financial services, online payments, peer-to-peer network, technology adoption.