Asst. Prof. Yilong xu
Does mining fuel bubbles?
An experimental study on cryptocurrency markets
We investigate how key features associated with the Proof-of-Work consensus mechanism of Bitcoin (commonly referred to as mining) affect pricing. In a controlled laboratory experiment, we observe that price bubble formation can be attributed to mining. Moreover, bubbles are more pronounced if the mining capacity is centralized to a small group of individuals. The order book data reveal that miners seem to play a crucial role in bubble formation. Our results demonstrate that high price volatility is an inherent feature of cryptocurrencies based on a mining protocol, thus, seriously limiting any prospects for such assets becoming a medium of exchange.
Yilong Xu received his PhD in Economics from Tilburg University in 2017. He was a postdoctoral researcher (behavioral finance) at Heidelberg University, Germany, for three years and he is now an assistant professor of Finance at Utrecht University. His research interests lie primarily in the area of Behavioral and Experimental Finance, Wealth and Ethics, and Fundamental Aspects of (Financial) Decision-making. His work has been published in leading economics journals such as European Economic Review, Experimental Economics, and Journal of Economic Behavior & Organization. He served as a consulting expert to the European Commission, and as a referee for funding agencies such as the National Science Foundation in the U.S.
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