Conference Agenda

Public debate about cryptocurrency reveals strong and disparate opinions on potential adoption. The paper argues that this uncertainty is the driving factor of cryptocurrency prices. In the model presented, uncertainty about a cryptocurrency's eventual adoption demand amount leads to a discounted cryptocurrency price. However, over time, investors learn about the likely extent of eventual adoption, and the discount reduces. The model replicates the long-term decline in price growth rates and variance of Bitcoin and other major cryptocurrencies. The model can forecast expected price growth and variance conditional on low interim adoption, providing guidance to cryptocurrency allocation sizing within an investment portfolio. The model also estimates the probability distribution of a cryptocurrency's extent of eventual adoption.