Socioeconomic fundamentals of bitcoin using stochastic growth model

Abstract

Digital assets have become widely adopted by young investors mostly aged under 34; however; there are various questions and concerns about the underlying socioeconomic fundamentals of these digital assets, especially bitcoin, because bitcoin constituted 47 percent of the total market capitalization of cryptocurrencies in 2021. The numbers of crypto ownership are expected to reach over 320 million users worldwide in 2022. The data reveal that there was a rapid growth in digital assets investment during 2021 and 2022, and bitcoin reached an annual growth rate of 60 percent in 2021. The objective of this study is to examine the underlying socioeconomic fundamentals of global bitcoin market. Our newly developed theoretical model and empirical findings reveal the possibility of digital asset to align and integrate within the portfolio asset allocation. The model and empirical evidences indicate explicit coherence between bitcoin and some socioeconomics fundamentals that reflect the cost of living. The trend component in bitcoin data is observed. The results are consistent with financial portfolio model.