I am thrilled to announce I have received a first-class distinction from The University of Edinburgh for my dissertation titled "Is Bitcoin becoming more efficient? A Study of Fundamentals and Randomness." This dissertation is a culmination of all the research I have conducted in this area since the beginning of university and has been one of the most enjoyable projects I have worked on.
In my research, I explored the hypothesis of efficiency and trend-based behaviour in Bitcoin using quantitative analysis. Employing a variety of statistical tests in Python, I assessed long-memory persistence-based behaviour and autocorrelation between returns. With a sample size of 872,684 data points for Bitcoin five-minute price action, 73,234 data points for one-hour intervals, and 3,037 data points for daily timeframes, the study provides robust context, showing increased efficiencies as timeframes decrease and trend-based behaviour over longer periods.
My dissertation also contributes to the existing literature by focusing on consensus mechanisms, block space, and time to finality. I examined how node operator incentives and operating costs influence market efficiency. This comprehensive approach offers a nuanced view of Bitcoin's market efficiency across different timeframes, enriched by an analysis of the underlying technology. Furthermore, the research delves into the technological limits of the Bitcoin blockchain, proposing that latency and block time complexity may underlie observed inefficiencies. It also examines the roles of custodial exchanges, market makers, and arbitrage, highlighting the tension between transactional immediacy and network security.
Finally, this study relates these findings to broader market efficiency concepts within the context of decentralized finance (DeFi). As blockchain technology evolves, it is crucial to develop a framework for efficiency that considers the unique characteristics of cryptocurrencies and the expanding DeFi sector. This research aims to advance the discussion on cryptocurrencies' roles in the digital age and the future of financial markets by providing a detailed analysis of Bitcoin's market efficiency while accounting for technological, operational, and behavioural factors.
I am excited to see where this research leads as it supports our work at bindpay in making payments truly efficient. If you're interested in reading the full paper, please drop me a message!