Volatility Modeling Using High Frequency Data to Identify Cryptocurrency Bubbles

Bitcoin has gotten significant interest throughout the world, in not just investors and the financial community, but also among the general public. Over the past few years, the price of Bitcoin has risen and fallen dramatically. Because of the dramatic price increases, many articles in the popular business press have argued that Bitcoin exhibits speculative bubble behavior. We use a nonparametric stochastic volatility estimator, proposed by Florens-Zmirou (1993), to test whether Bitcoin prices were the result of a speculative bubble. We find that there were periods during rapid price increases in 2017, 2020, and 2021 where Bitcoin exhibited asset bubble behavior. These results are significant because our results provide strong empirical evidence of bubble behavior