A Dynamical Systems Approach to Cryptocurrency Stability

Authors

Carey Caginalp, Chapman University

Document Type

Article

Publication Date

8-8-2019

Abstract

Recently, the notion of cryptocurrencies has come to the fore of public interest. These assets that exist only in electronic form, with no underlying value, offer the owners some protection from tracking or seizure by government or creditors. We model these assets from the perspective of asset flow equations developed by Caginalp and Balenovich, and investigate their stability under various parameters, as classical finance methodology is inapplicable. By utilizing the concept of liquidity price and analyzing stability of the resulting system of ordinary differential equations, we obtain conditions under which the system is linearly stable. We find that trend-based motivations and additional liquidity arising from an uptrend are destabilizing forces, while anchoring through value assumed to be fairly recent price history tends to be stabilizing.

Comments

This article was originally published in AIMS Mathematics, volume 4, issue 4, in 2019. https://doi.org/10.3934/math.2019.4.1065

Recommended Citation

Caginalp, C. (2019). A dynamical systems approach to cryptocurrency stability. AIMS Mathematics, 4(4), 1065-1077. https://doi.org/10.3934/math.2019.4.1065

Peer Reviewed

1

Copyright

The author

Creative Commons License

This work is licensed under a Creative Commons Attribution 4.0 License.