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1. Eastern Washington University Eastern Washington University
EWU Digital Commons EWU Digital Commons
2023 Symposium Works by 2023 Symposium participants
Bitcoin Price Dynamics: A Multiple Regression Analysis of Market Bitcoin Price Dynamics: A Multiple Regression Analysis of Market
Variables Variables
Zachary S. Biedscheid
Eastern Washington University
Follow this and additional works at: https://dc.ewu.edu/srcw_2023
Part of the Econometrics Commons, Economic History Commons, Economic Theory Commons,
Finance Commons, Growth and Development Commons, and the Macroeconomics Commons
Recommended Citation Recommended Citation
Biedscheid, Zachary S., "Bitcoin Price Dynamics: A Multiple Regression Analysis of Market Variables"
(2023). 2023 Symposium. 2.
https://dc.ewu.edu/srcw_2023/works_2023/works_2023/2
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2. Zach Biedscheid
Econ 490
Final Report

“Bitcoin Price Dynamics: A Multiple Regression Analysis of Market Variables”


Abstract
Bitcoin, a decentralized digital currency, has gained significant attention recently as a
potential alternative to traditional financial systems. This research project aims to explore the
adoption and impact of Bitcoin by conducting a comparative analysis. The literature review
highlights the adoption and impact of Bitcoin in economics and finance, specifically in banking
and monetary systems. It explores Bitcoin's decentralized nature and limited supply as a more
secure and stable form of money, contrasting it with the flaws and inefficiencies of centralized
banking systems. The dataset provides information on the Bitcoin market from July 23, 2010, to
April 16, 2023, including variables such as Bitcoin Monthly Close Price, Volume, Market Cap,
Hash Rate, and Total Circulating Supply. The methodology employs a multiple regression model
to estimate the relationship between the Bitcoin Monthly Close Price (dependent variable) and
the independent variables: Volume, Market Cap, Hash Rate, and Total Circulating Supply.
Results from the dataset show a high R-squared value of 0.9988, suggesting that the independent
variables explain 99.88% of the variation in the Bitcoin price, indicating a strong explanatory
power of the model. These findings highlight the importance of adoption, acceptance, and
scarcity in determining Bitcoin's price dynamics. Further research could explore additional
variables and factors to deepen our understanding of Bitcoin's price movements and inform
investment decisions, research efforts, and policymaking in the Bitcoin market.

3. Introduction
The market for Bitcoin operates as a decentralized digital currency characterized by a
peer-to-peer electronic cash network. This market has numerous buyers and sellers, as
individuals and entities worldwide participate in trading and transacting with Bitcoin. The nature
of the market is global, as Bitcoin enables transactions to occur without intermediaries like banks
or central authorities. This decentralized nature empowers individuals to engage in financial
activities directly, promoting financial inclusion and bypassing traditional barriers to entry. The
market for Bitcoin holds significant importance in several ways. Firstly, it provides an alternative
to traditional fiat currencies that are susceptible to inflation and can be influenced by
governments and central banks. Bitcoin has a limited supply of 21 million (Saifedean), so its
value is not subject to dilution. Bitcoin's design as a store of value and medium of exchange
allows individuals to safeguard their wealth and conduct transactions independently without
relying on centralized institutions. This decentralization fosters financial autonomy and
resilience, especially in regions with unstable currencies or limited access to traditional financial
services.
The independent variables in the dataset include Volume, Market Cap, Hash Rate, and
Total Circulating Supply. These variables provide essential insights into different aspects of the
Bitcoin market and can be used to analyze and understand various dynamics within the
cryptocurrency ecosystem. Volume represents the total trading activity of Bitcoin, indicating the
level of liquidity and investor participation. Market Cap reflects the total value of Bitcoin in
circulation, calculated by multiplying the price of Bitcoin by the number of coins in circulation.
Hash Rate represents the computational power dedicated to mining and securing the Bitcoin
network. A higher hash rate signifies a more secure network and greater mining activity. Total

4. Circulating Supply refers to the total number of Bitcoins currently circulating. It represents the
available supply of Bitcoin and plays a role in determining its scarcity.
I am utilizing a multiple regression model to examine the relationship between the
independent variables (Volume, Market Cap, Hash Rate, and Total Circulating Supply) and the
dependent variable, which is the monthly close price of Bitcoin. By inputting the dataset
consisting of 156 observations for each variable into the regression model, I aim to assess how
much of the variation in Bitcoin price can be explained by these independent variables. By
examining the coefficients and statistical significance of each independent variable, I can assess
their impact on Bitcoin price and determine the extent to which they explain its variation. The
benefits of this study are multifaceted. Firstly, it will enhance our understanding of the
fundamental factors influencing the price of Bitcoin. Quantifying the relationships between
the independent variables and Bitcoin price allows one to identify which variables have a
significant impact and better comprehend the dynamics of the Bitcoin market. This knowledge
can be invaluable for investors, traders, and financial institutions operating in the Bitcoin space,
as it provides insights into the critical drivers of Bitcoin price fluctuations. As well as valuable
information for politicians and lawmakers regarding legislation.
Literature Review
The topic of this paper coincides with the field of economics and finance, specifically in
banking and monetary systems. Bitcoin, a digital currency, has gained significant attention in
recent years and is a major disruptor in the traditional financial markets. This paper seeks to
explore the adoption and impact of Bitcoin through a comparative analysis. The general nature of
this field involves studying how Bitcoin's financial systems operate, its adoption patterns, and
how it will impact society as a whole. As the world continues to transition to a more digital era,

5. the impact of Bitcoin on traditional banking and monetary systems cannot be ignored.
Understanding the adoption and impact of Bitcoin is therefore crucial for policymakers,
investors, and financial institutions.
Saifedean (2018) describes the history of money and monetary systems and how Bitcoin
is a decentralized alternative to traditional central banking. The paper highlights the
inefficiencies and flaws of centralized banking systems, which have historically led to inflation,
market distortions, and economic crises. The author argues that Bitcoin's decentralized and
limited supply nature makes it a more secure and stable form of money with the potential to
revolutionize the monetary system. This paper is relevant to the study of Bitcoin's adoption and
impact as it provides a theoretical foundation for the advantages of a decentralized monetary
system. It also sheds light on the potential implications of Bitcoin's adoption, particularly in the
context of traditional banking and monetary policies.
Saifedean (2021) explores the flaws of modern fiat currency and its impact on society.
The paper delves into the history of fiat currency, its origins, and its evolution to become the
dominant monetary system worldwide. Through extensive research and analysis, Ammous
argues that a fiat monetary system is a tool of oppression, leading to economic inequality,
inflation, and financial instability. One of the key findings in the paper is the relationship
between the fiat standard and government power. Ammous contends that centralizing monetary
power has allowed governments to expand their control over the economy and citizens, leading
to a decline in individual freedoms. The paper also emphasizes the importance of sound money
and how adopting a decentralized alternative, such as Bitcoin, can help restore financial
autonomy and prosperity. Regarding its relevance to my paper, Ammous' analysis of the fiat
standard is a foundation for understanding the economic and societal implications of Bitcoin's

6. adoption. By contrasting the flaws of the fiat system with the potential benefits of a decentralized
alternative, we can better understand how Bitcoin may impact the current monetary landscape
and shape the future of finance.
Berlatsky (2015) provides an overview of Bitcoin's digital currency, history, technology,
and societal impact. The author discusses the decentralization of currency and the potential
benefits and drawbacks of Bitcoin's use as an alternative to traditional fiat currencies. The book
covers various perspectives on the adoption and regulation of Bitcoin, including its use in illegal
activities and its potential as a tool for financial freedom. His discussion of the challenges and
barriers to adoption can help identify areas where further research is needed to understand how
Bitcoin can be effectively integrated into the existing financial system. Berlatsky's book can
provide a valuable foundation for my analysis of the adoption and impact of Bitcoin.
The literature reviewed in this paper focuses on Bitcoin, a digital currency that has
disrupted traditional financial markets. The field of economics and finance, specifically in
banking and monetary systems, provides a foundation for understanding the adoption and impact
of Bitcoin. Saifedean's (2018) paper highlights the inefficiencies and flaws of centralized
banking systems and argues that Bitcoin's decentralized and limited supply nature makes it a
more secure and stable form of money. Saifedean's (2021) paper explores the flaws of modern
fiat currency and its impact on society, arguing that a fiat monetary system is a tool of oppression
that leads to economic inequality, inflation, and financial instability. Berlatsky's (2015) book
provides an overview of Bitcoin's digital currency, history, technology, and societal impact and
discusses various perspectives on the adoption and regulation of Bitcoin. The literature reviewed
helps to understand the economic and societal implications of Bitcoin's adoption and the
potential benefits of a decentralized alternative.

7. Data
The data set covers the period from July 23, 2010, to April 16, 2023, and is obtained from
data.nasdaq.com and Blockchain.com, providing information on the Bitcoin market. The data set
includes five variables: Bitcoin Monthly Close Price (Individual), Volume (Aggregated), Market
Cap (Aggregated), Hash Rate (Aggregated), and Total Circulating Supply (Aggregated). These
variables can provide insights into the trends in trading activity, price movements, mining
activity, and overall market size and value of the Bitcoin ecosystem, which is useful for
investment decisions, research, and policy-making. The dataset contains the summary statistics
of these variables, such as mean, standard error, standard deviation, median, mode, kurtosis,
skewness, range, minimum, maximum, sum, and count.

8. Table:
Bitcoin Price
Close (D)
Volume (I) Market Cap (I) Hash Rate (I) Total
Circulating
Supply (I)


Mean 8818.517316 Mean 16956936021 Mean 1.64015E+11 Mean 54813816.22 Mean 14425955.97
Standard Error 1132.919837 Standard Error 2286142202 Standard Error 21536464263 Standard Error 6718203.267 Standard Error 358474.1655
Median 866.359 Median 95623736.42 Median 13050052671 Median 1921242.57 Median 15988187.5
Mode #N/A Mode 0 Mode 0 Mode #N/A Mode #N/A
Standard
Deviation
14150.16423 Standard
Deviation
28553906955 Standard
Deviation
2.6899E+11 Standard
Deviation
83910331.92 Standard
Deviation
4477340.892
Sample
Variance
200227147.7 Sample
Variance
8.15326E+20 Sample
Variance
7.23558E+22 Sample
Variance
7.04094E+15 Sample
Variance
2.00466E+13
Kurtosis 3.174763064 Kurtosis 2.10076235 Kurtosis 3.134640914 Kurtosis 1.769027453 Kurtosis -0.21885737
Skewness 1.974576836 Skewness 1.753385942 Skewness 1.982512056 Skewness 1.599930762 Skewness -0.914747653
Range 61238.5596 Range 1.24603E+11 Range 1.15164E+12 Range 351118491 Range 16417156.25
Minimum 0.0626 Minimum 0 Minimum 0 Minimum 0.000125573 Minimum 2935550
Maximum 61238.6222 Maximum 1.24603E+11 Maximum 1.15164E+12 Maximum 351118491 Maximum 19352706.25
Sum 1375688.701 Sum 2.64528E+12 Sum 2.55863E+13 Sum 8550955330 Sum 2250449131
Count 156 Count 156 Count 156 Count 156 Count 156


The mean value of the Bitcoin monthly closing price is 8818.52 USD, and the highest
closing price in the dataset is 61238.62 USD. The lowest closing price of Bitcoin in the dataset is
0.0626 USD. The highest price in the data set is almost 1000 times greater than the lowest price,
suggesting that Bitcoin can experience huge price swings over time. The mean value of the
volume of Bitcoin trading is approximately 16.96 billion USD daily, and the maximum volume
observed in the data set is 124.6 billion USD. The minimum volume observed in the data set is 0
USD (day). Suggesting that Bitcoin is a highly liquid asset with a large trading market. The mean

9. market cap of Bitcoin during the given time period is $164.015 billion, with $1.15 trillion as the
highest and $0 as the lowest market cap value. Meaning Bitcoin has become a major player in
the global financial market. The average hash rate of Bitcoin during the given time period is
54.81381622 terahash per second, with 351.118491 terahash per second being the highest hash
rate value and 0.000125573 terahash per second being the lowest hash rate value. The
computational power of the Bitcoin network has increased over time, which could be an
indication of the growing interest and adoption of the cryptocurrency (BTC).
Theory
The dependent variable in this estimation is the Bitcoin price, represented by the "Bitcoin
Price Close (D)" variable. The other variables, Volume (I), Market Cap (I), Hash Rate (I), and
Total Circulating Supply (I), are independent variables that are being examined for their impact
on the supply and demand for Bitcoin. The volume coefficient value is -3.65E-09. The volume of
Bitcoin traded represents the quantity of Bitcoin exchanged in the market. However, the
coefficient is relatively small and statistically insignificant (p-value > 0.05). Therefore, the
volume might not significantly impact the supply and demand for Bitcoin in this model. The
market cap coefficient value is 5.29E-08. The market capitalization of Bitcoin reflects the overall
value and acceptance of Bitcoin in the market. The positive coefficient indicates that an increase
in the market cap suggests that more investors are interested in acquiring Bitcoin, which would
lead to an upward shift in the demand curve. The hash rate coefficient value is -1.74E-06. The
hash rate measures the computational power dedicated to mining Bitcoin. The negative
coefficient suggests that increasing the hash rate might lead to a decrease in the demand for
Bitcoin. This could be due to higher hash rates making Bitcoin mining more competitive and less
profitable, potentially reducing the supply growth of Bitcoin. The total circulating supply

10. coefficient value is 4.25E-05. The total circulating supply of Bitcoin represents the number of
coins available in the market. The positive coefficient indicates that an increase in the total
circulating supply would shift the supply curve to the right for Bitcoin. As the supply of Bitcoin
expands, it becomes more accessible, potentially attracting more buyers and increasing overall
demand.
The three variables I did not use that could affect supply and demand in the data set are
the USD inflation rate, US interest rates, and Unemployment rates. USD inflation rate; A high
inflation rate erodes the value of traditional currencies, including the US dollar. As a result,
individuals may seek alternative stores of value, such as Bitcoin, to protect their wealth against
inflation. This leads to an increased demand for Bitcoin, causing a rightward shift in the demand
curve. US interest rates; Higher interest rates can make traditional financial investments more
attractive, potentially reducing the demand for Bitcoin. This leads to a leftward shift in the
demand curve. Conversely, lower interest rates stimulate borrowing and investment activity,
potentially increasing the demand for alternative investments like Bitcoin. In this case, there
could be a rightward shift in the demand curve. Unemployment rate; High unemployment rates
can reduce consumer spending and confidence, potentially decreasing the demand for Bitcoin as
an investment or medium of exchange. This results in a leftward shift in the demand curve.
Bitcoin is the only asset in the world that is inelastic to price. Inelastic means that a 1%
change in the price of a good or service has less than a 1% change in the quantity demanded or
supplied. Bitcoin's supply is limited to 21 million coins, which is hard-coded into the protocol.
This means that the supply of Bitcoin is fixed, and no more coins can be created beyond this
limit. This is in contrast to traditional currencies, which can be created or destroyed by central
banks in response to changing economic conditions.

11. Methodology
The dataset consists of five variables: Bitcoin Monthly Close Price, Volume, Market Cap,
Hash Rate, and Total Circulating Supply. The data covers the period from July 23, 2010, to April
16, 2023, obtained from data.nasdaq.com and Blockchain.com., providing information on the
Bitcoin market. The dataset includes data over time, covering more than 12 years. It also
contains observations across individuals, reflecting different trading activities, mining activity,
and market size of the Bitcoin ecosystem. The dataset does not include any observations
dropped. However, it has calculated variables such as market cap, which is the product of the
circulating supply of Bitcoin, and the Bitcoin price. The dependent variable in the dataset is
continuous, as they take on a range of values. A multiple regression model would be the
appropriate model to estimate the relationship between the dependent variable and the
independent variables. The multiple regression model can be calculated using Greene (2018),
which outlines econometrics' basic concepts and techniques.

“Bitcoin Monthly Close Price = β0 + β1 * Volume + β2 * Market Cap + β3 * Hash Rate + β4 *
Total Circulating Supply + ε”
Bitcoin Monthly Close Price is the dependent variable. Volume, Market Cap, Hash Rate,
and Total Circulating Supply are the independent variables.
Continuous variables are numeric variables that can take on any value within a certain
range. In the dataset, the Bitcoin Monthly Close Price, Volume, Market Cap, and Hash Rate
variables are all continuous. A dummy variable, on the other hand, is a categorical variable that
takes on a value of 0 or 1 to represent the presence or absence of a particular category. In the
dataset, the Total Circulating Supply variable is a dummy variable that represents the presence or

12. absence of a certain level of Bitcoin supply. The variable takes on a value of 1 if the total
circulating supply of Bitcoin is greater than or equal to a certain level and 0 otherwise. This
variable can be used to group the data into two categories based on the level of Bitcoin supply,
which can help analyze the relationship between supply and other variables in the dataset.
Results
Descriptions of independent variables are: Volume (I) This variable represents the trading
volume of Bitcoin. It is an independent variable because higher trading volume could indicate a
greater or lower demand for Bitcoin, leading to an increase or decrease in price. Market Cap (I)
This variable represents the market capitalization of Bitcoin. It is an independent variable
because market capitalization measures the total value of all Bitcoin in circulation and is an
essential factor in determining Bitcoin price and adoption. Hash Rate (I) This variable represents
the Bitcoin network's computing power. It is an independent variable because a higher hash rate
could indicate greater network security and reliability, which could, in turn, lead to increased
demand for Bitcoin and an increase in price. Total Circulating Supply (I) This variable represents
the total number of Bitcoins currently in circulation. It is an independent variable because
changes in the total supply could impact the supply and demand dynamics of the Bitcoin market,
which could, in turn, affect the price of Bitcoin.
Description of the dependent variable: Bitcoin monthly close price (D). Bitcoin price is
the market value of one unit of Bitcoin. The regression analysis aims to identify which of the
independent variables included are most strongly associated with changes in the Bitcoin price.

13. Marginal Effects on Bitcoin Price
Variables Coefficients Standard Error
Bitcoin Price Close (D) -319.5568008** 151.4392337
Volume (I) -3.65065E-09 3.62558E-09
Market Cap (I) 5.29402E-08*** 3.38176E-10
Hash Rate (I) -1.73683E-06* 8.805E-07
Total Circulating Supply
(I)
4.25172E-05*** 1.15236E-05
*** p<0.01, ** p<0.05, * p<0.10
R^2 = 0.9988

The R squared value of 0.9988 indicates that 99.88% of the variation in Bitcoin price can
be explained by the independent variables. The coefficient for Volume (I) is negative but not
statistically significant (p-value > 0.05), which suggests that there is no significant relationship
between trading volume and the daily closing price of Bitcoin. Bitcoin's total Market
Capitalization (I) is the product of the total number of Bitcoins in circulation and the daily
closing price. The coefficient for Market Capitalization (I) is positive and highly statistically
significant (p-value < 0.05), which suggests a strong positive relationship between market
capitalization and the daily closing price of Bitcoin. The coefficient for Hash Rate (I) is negative
but not statistically significant (p-value > 0.05), which suggests that there is no significant
relationship between the hash rate and the daily closing price of Bitcoin. The coefficient for
Total Circulating Supply (I) is positive and statistically significant (p-value < 0.05), which
suggests that there is a significant positive relationship between the total circulating supply of

14. Bitcoin and the daily closing price, which supports the truthfulness behind Bitcoin's fixed supply
of 21 million Bitcoins.
Conclusion
The regression analysis examined the relationship between Bitcoin's daily closing price
(D) and several independent variables, including trading volume, market capitalization, hash
rate, and total circulating supply. The R-squared value of 0.9988 indicates that the independent
variables can explain 99.88% of the variation in Bitcoin price. The volume (I) coefficient was
negative but not statistically significant, suggesting no significant relationship between trading
volume and the daily closing price of Bitcoin. Market capitalization (I) showed a positive and
highly significant relationship with the daily closing price, indicating a strong positive impact of
market capitalization on Bitcoin price. The hash rate (I) coefficient was negative but not
statistically significant, suggesting no significant relationship between the hash rate and the daily
closing price of Bitcoin. Total circulating supply (I) had a positive and statistically significant
association with the daily closing price, supporting the significance of Bitcoin's fixed supply and
further adoption.
The results suggest that market capitalization and total circulating supply are important
factors influencing the daily closing price of Bitcoin. A higher market capitalization reflects
increased adoption and acceptance of Bitcoin, leading to higher prices. The positive relationship
between total circulating supply and Bitcoin price supports the notion of scarcity and the
potential impact of limited supply on price. However, trading volume and the hash rate did not
show significant relationships with the daily closing price. This indicates that other factors may
play a more dominant role in short-term price movements.

15. Some findings may be specific to the Bitcoin market and not generalizable to other
cryptocurrencies or financial markets. Making it challenging to determine policy for lawmakers.
The specifications used in the analysis should be assessed for potential biases or omitted
variables that could influence results. I have ownership of Bitcoin.
Future research could explore the impact of other variables, such as investor sentiment,
regulatory developments, and macroeconomic factors, on Bitcoin price. Investigating the
relationship between Bitcoin price and other cryptocurrencies could provide insights into the
broader cryptocurrency market dynamics. The long-term analysis could assess the stability of the
relationships and determine whether the observed patterns hold over extended periods. The
findings contribute to understanding the factors influencing Bitcoin's price dynamics and can
inform investment decisions, research endeavors, and policy-making related to cryptocurrencies.
Bitcoin is a decentralized digital currency operating on a peer-to-peer electronic cash
network without intermediaries like banks. It was created in 2009 by an unknown person or
group using the pseudonym Satoshi Nakamoto. Bitcoin is designed to function as a store of value
and a medium of exchange, allowing people to make transactions without needing a central
authority. Transactions on the Bitcoin network are verified through cryptography and recorded
on a public ledger called the blockchain.
The purpose of Bitcoin is to provide an alternative to traditional fiat currencies, which are
subject to inflation and can be manipulated by governments and central banks. Bitcoin enables
financial inclusion by allowing people without access to traditional financial services to
participate in the global economy. With a smartphone and internet connection, anyone can
download and start using a Bitcoin wallet. Bitcoin transactions are processed quickly, usually
within minutes, with extremely low fees, and are secure thanks to the Proof of Work (PoW)

16. system. Bitcoin has a limited supply (21 million), so its value is not subject to dilution. This
makes it an attractive store of value for people living in countries with unstable currencies.
In conclusion, Bitcoin is a decentralized digital currency operating on a peer-to-peer
electronic cash network without intermediaries like banks. It was designed to function as a store
of value and a medium of exchange, enabling people to make transactions without needing a
central authority. Bitcoin's blockchain technology ensures secure and transparent transactions,
and its limited supply makes it an attractive alternative to traditional fiat currencies. Bitcoin's
proof-of-work system, which incentivizes miners to contribute their computational power to the
network, is integral to the network's security and integrity. While it started as a small experiment
with no significant value, Bitcoin has since grown into a global phenomenon with a market
capitalization of Billions of dollars, providing financial inclusion to millions of people
previously excluded from traditional financial services.

17. References

Works Cited:

Ammous, Saifedean. “The Bitcoin Standard, The decentralized alternative to central banking.”
Wiley. Book. 2018.

Ammous, Saifedean. “The Fiat Standard, The debt slavery alternative to human civilization.”
Wiley. Book. 2021.

Berlatsky, Noah. “Bitcoin” Greenhaven Press. Book. 2015.

Greene, W.H. “Econometric Analysis.” 8th Edition. New Jersey, Prentice Hall. Book. 2018.

Nasdaq Data Link. “Bitcoin Data Products." Nasdaq, data.nasdaq.com/search?query=bitcoin.
Web. 23 Apr. 2023.

Wasylik, Grant. "Bitcoin Is Moving Up the Adoption Curve." Palm Beach Research Group. 26
Oct. 2021. www.palmbeachgroup.com/palm-beach-daily/bitcoin-is-moving-up-the-adoption-
curve/. Web. 23 Apr. 2023.

18. Bitcoin Price Dynamics:
A Multiple Regression
Analysis of Market
Variables
Zachary Biedscheid
BA Economics -Minor in Philosophy
Mentor Mark Holmgren PhD

19. What is Bitcoin?
Bitcoin is a decentralized digital currency that operates on a peer-to-peer
electronic cash network without the need for intermediaries like banks. It
was created in 2009 by an unknown person or group of people using the
pseudonym Satoshi Nakamoto. Bitcoin is designed to function as a store
of value and a medium of exchange, allowing people to make transactions
without the need for a central authority. Transactions on the Bitcoin
network are verified through cryptography and recorded on a public
ledger called the blockchain.

20. The Purpose of Bitcoin
The purpose of Bitcoin is to provide an alternative to traditional fiat currencies which are
subject to inflation and can be manipulated by governments and central banks. Bitcoin
enables financial inclusion by allowing people without access to traditional financial
services to participate in the global economy. With a smartphone and internet connection,
anyone can download a Bitcoin wallet and start using it. Bitcoin transactions are processed
quickly, usually within minutes, extremely low fees, and are secure thanks to the Proof of
Work (PoW) system. Bitcoin has a limited supply (21 million) which means that its value
is not subject to dilution through inflation. This makes it an attractive store of value for
people living in countries with unstable currencies.

21. Bitcoin Math
Bitcoin uses several formulas to perform different functions, but two of the most important ones are the formula used to calculate the mining
difficulty and the formula used to calculate the reward for mining a new block.
The formula for mining difficulty adjusts the difficulty of mining a block to ensure that the rate of block creation stays constant. This formula takes into
accountthe total network hash rate (the amount of computational power being used to mine bitcoins), the target block creation time (which is 10 minutes
for each Block), and the current difficulty level. The formula is:
New Difficulty = Current Difficulty * (Target Time / Actual Time) * (Total Hash Rate / Target Hash Rate)
In this formula, the "Target Time" is the time it should take to mine a block (10 minutes for Bitcoin), "Actual Time" is the time it actually tookto mine
the last 2016 blocks, "Total Hash Rate" is the total computational power of the network, and "Target Hash Rate" is the ideal hash rate for the network.
The formula for block reward determines how many new bitcoins are created with each
new block that is added to the blockchain. This formula is designed to reduce the
number of new bitcoins created over time and to ensure that there is a finite supply of
bitcoins. The formula is:
Block Reward = (Current Block Subsidy / 2) ^ (Blocks Since Last Halving / Halving
Interval)
In this formula, the "Current Block Subsidy" is the number of bitcoins awarded for
mining a block (which started at 50 bitcoins per block and is currently 6.25 bitcoins per
block), the "Halving Interval" is the number of blocks until the block reward is halved
(which is currently 210,000 blocks), and "Blocks Since Last Halving" is the number of
blocks that have been mined since the last halving event. This formula ensures that the
number of new bitcoins created with each block will continue to decrease over time
until the total supply of bitcoins reaches 21 million.

23. Peer to Peer System
Bitcoin's peer-to-peer (P2P) system is a decentralized network where users can send and receive
Bitcoins permissionless. In this system, every user has a copy of the Bitcoin ledger, which is a
record of all the transactions that have ever taken place on the network. The transaction contains
the recipient's Bitcoin address, the amountof bitcoins being sent, and a digital signature that
proves the transaction is legitimate. The transaction is then broadcasted to the entire network, and
every node on the network validates the transaction using complex algorithms. Once the
transaction is verified, it is added to a block, which is a group of transactions that are linked
together. Once the block is added to the blockchain, the transaction is considered confirmed, and
the bitcoins are transferred from the sender's wallet to the recipient's wallet. This process typically
takes about 10 minutes, but it can vary depending on network congestion and other factors.
The peer-to-peer system describes how transactions are propagated and verified on the network,
the proof-of-work system describes how new bitcoins are created and transactions are validated
on the network. Both systems are integral to the functioning of the Bitcoin network.

24. Proof of Work
Bitcoin's proof-of-work (PoW) system is a consensus mechanism used to confirm transactions and add
new blocks to the blockchain. It is a cryptographic puzzle that miners must solve in order to validate
transactions and receive rewards in the form of newly minted bitcoins. The PoW system works by
requiring miners to use their computational power to solve complex mathematical problems. The first
miner to solve the puzzle and validate the transaction is rewarded with bitcoins. This creates an incentive
for miners to contribute their computational power to the network and validate transactions. The PoW
system is designed to be very difficult to solve, requiring a lot of computational power and energy. This is
intentional, as it helps to prevent malicious actors from taking control of the network and manipulating
transactions. The difficulty of the puzzle is adjusted regularly to ensure that blocks are added to the
blockchain at a consistent rate. The PoW system is a crucial part of the Bitcoin network, as it ensures the
security and integrity of the blockchain by incentivizing miners to validate transactions and add new
blocks to the network. There is also an incentive for miners once the last Bitcoin is mined in roughly 120
years. Miners will be able to earn an income from transaction processing fees. This will ensure Bitcoins
network will be secured once block rewards stop.

25. Historical Performance
• 2009 -Bitcoin was first introduced and had no significant value.
• 2010 -the first Bitcoin transaction took place when a programmer bought two pizzas for 10,000 bitcoins, which is now consideredthe first "real-world" transaction using
Bitcoin.
• 2011 -Bitcoin gained more widespread attention and its price rose from $1 to $30. However, it quickly fell back down to around $2.
• 2013 -Bitcoin experienced a massive surge in value, with its price rising from around $13 in January to over $1,000 in December. This was due to increased media attention
and wider adoption of the currency.
• 2014 -the price of Bitcoin declined significantly, dropping from over $1,000 to around $300.
• 2015\2016-Bitcoin's price remained relatively stable, with some fluctuations between $200 and $500.
• 2017 -Bitcoin experienced another surge in value, reaching an all-time high of nearly $20,000 in December. This was largely driven by increased adoption, media attention,
and speculation.
• 2018 -the price of Bitcoin declined significantly again, dropping to around $3,000 by the end of the year.
• 2019\2020-Bitcoin's price remained relatively stable, fluctuating between $3,000 and $14,000.
• 2021 -Bitcoin reached another all-time high, surpassing $64,000 in April before experiencing a significant decline in value.
Bitcoin Price Close (D) Volume (I) Market Cap (I) Hash Rate (I) Total Circulating Supply (I)
Mean 8818.517316Mean 16956936021Mean 1.64015E+11Mean 54813816.22Mean 14425955.97
Standard Error 1132.919837Standard Error 2286142202Standard Error 21536464263Standard Error 6718203.267Standard Error 358474.1655
Median 866.359Median 95623736.42Median 13050052671Median 1921242.57Median 15988187.5
Mode #N/A Mode 0Mode 0Mode #N/A Mode #N/A
Standard Deviation 14150.16423Standard Deviation 28553906955Standard Deviation 2.6899E+11Standard Deviation 83910331.92Standard Deviation 4477340.892
Sample Variance 200227147.7Sample Variance 8.15326E+20Sample Variance 7.23558E+22Sample Variance 7.04094E+15Sample Variance 2.00466E+13
Kurtosis 3.174763064Kurtosis 2.10076235Kurtosis 3.134640914Kurtosis 1.769027453Kurtosis -0.21885737
Skewness 1.974576836Skewness 1.753385942Skewness 1.982512056Skewness 1.599930762Skewness -0.914747653
Range 61238.5596Range 1.24603E+11Range 1.15164E+12Range 351118491Range 16417156.25
Minimum 0.0626Minimum 0Minimum 0Minimum 0.000125573Minimum 2935550
Maximum 61238.6222Maximum 1.24603E+11Maximum 1.15164E+12Maximum 351118491Maximum 19352706.25
Sum 1375688.701Sum 2.64528E+12Sum 2.55863E+13Sum 8550955330Sum 2250449131
Count 156Count 156Count 156Count 156Count 156
The measures of central tendency and dispersion

27. Supply and Demand
Bitcoin is the only asset in the world that is inelastic to price. Inelastic means that a
1% change in the price of a good or service has less than a 1% change in the
quantity demanded or supplied.
Bitcoin's supply is limited to 21 million coins, and this is hard-coded into the
protocol. This means that the supply of Bitcoin is fixed, and no more coins can be
created beyond this limit. This is in contrast to traditional currencies, which can be
created or destroyed by central banks in response to changing economic
conditions.

28. Supply and Demand
The factors that contribute to Bitcoin's inelasticity to price. As mentioned, Bitcoin's
supply is hard-capped at 21 million coins, which means that the rate of supply growth is
predetermined and cannot be altered by market demand. Additionally, the halving events,
which cut the rate of new supply issuance in half, occur at regular intervals and are
programmed into the Bitcoin protocol. As a result, the rate of new supply growth in
Bitcoin decreases over time, regardless of the price. This is because the rate of supply
growth is algorithmically determined by the protocol, not by market demand. This makes
the supply of Bitcoin increasingly scarce over time, which can drive up its price as
demand increases for Bitcoin.

30. Adoption
Bitcoin adoption has been steadily increasing since its creation in 2009, with individuals, businesses, and institutions recognizing its value as a
decentralized, secure, and transparent form of currency. Here is an S-curve analysis showing that ~90% of US households will ownBitcoin by 2029.

32. Regulatory Environment
The regulatory environment for Bitcoin in the US is complex and multi-layered, with various regulatory
bodies taking different approaches to regulating the space. Some of the key regulations and guidelines for
Bitcoin in the US include Securities Laws:The Securities and Exchange Commission (SEC) has issued
guidelines stating that some cryptocurrencies, such as ICOs, may be considered securities and subject to
federal securities laws. Commodity Regulations:The Commodity Futures Trading Commission (CFTC) has
classified Bitcoin as a commodity and has issued guidelines on its regulation. Money Transmission Laws:
Bitcoin exchanges and other businesses that deal with cryptocurrencies may be subject to state-level money
transmission laws and may require a money transmitter license in order to operate. Taxation:The Internal
Revenue Service (IRS) treats Bitcoin and other cryptocurrencies as property for tax purposes, which means
that they are subject to capital gains taxes. Anti-Money Laundering (AML) and Know Your Customer
(KYC) Requirements:Financial institutions and businesses dealing with cryptocurrencies are required to
comply with AML and KYC regulations under federal law. State-Level Regulations:Some states, such as
New York, have introduced their own regulatory frameworks for cryptocurrencies, such as the BitLicense,
which requires businesses dealing with cryptocurrencies to comply with a range of regulations.

33. Risks and Challenges
There are several risks associated with holding Bitcoin on exchanges. Firstly, exchanges are centralized and
therefore vulnerable to hacking attacks, which could result in the loss of your Bitcoin. Additionally, exchanges may
go out of business or face regulatory issues, potentially leaving you unable to access your Bitcoin. Another risk is
that exchanges may freeze or restrict your account, preventing you from accessing your Bitcoin for a variety of
reasons, such as suspected fraud or non-compliance with regulations. It is also important to note that when you hold
Bitcoin on an exchange, you do not have control over the private keys associated with your Bitcoin, which means
that you are not in full control of your own funds.
Volatility, Bitcoin's value is highly volatile, and its price can fluctuate widely within short periods. This makes it
challenging to use as a store of value to an average investor or as a means of payment. It also makes Bitcoin less
suitable for certain types of financial transactions, such as long-term contracts, as the value of the asset may be
unpredictable over long periods of time.

34. Conclusion
In conclusion, Bitcoin is a decentralized digital currency that operates on a peer-to-peer
electronic cash network without the need for intermediaries like banks. It was designed to
function as a store of value and a medium of exchange, enabling people to make
transactions without the need for a central authority. Bitcoin's blockchain technology
ensures secure and transparent transactions, and its limited supply makes it an attractive
alternative to traditional fiat currencies. Bitcoin's proof-of-work system, which
incentivizes miners to contribute their computational power to the network, is an integral
part of the network's security and integrity. While it started as a small experiment with no
significant value, Bitcoin has since grown into a global phenomenon with a market
capitalization in the Billions of dollars, providing financial inclusion to millions of people
who were previously excluded from traditional financial services.

35. Works Cited:
Ammous, Saifedean. “The Bitcoin Standard, The decentralized alternative to central
banking.” Wiley. Book. 2018.
Ammous, Saifedean. “The Fiat Standard, The debt slavery alternative to human
civilization.” Wiley. Book. 2021.
Berlatsky, Noah. “Bitcoin” Greenhaven Press. Book. 2015.
Nasdaq Data Link. “Bitcoin Data Products." Nasdaq,
data.nasdaq.com/search?query=bitcoin. Web. 23 Apr. 2023.
Wasylik, Grant. "Bitcoin Is Moving Up the Adoption Curve." Palm Beach Research Group.
26 Oct. 2021. www.palmbeachgroup.com/palm-beach-daily/bitcoin-is-moving-up-the-
adoption-curve/. Web. 23 Apr. 2023.