Hi Reddit! I’m Emiliano Pagnotta, Assistant Professor of Finance at Imperial College Business School. I have recently published a research paper titled ‘Bitcoin As Decentralized Money: Prices, Mining Rewards, and Network Security’.
About the paper:
In it, I address the determination and evolution of bitcoin prices and propose a simple monetary model that, unlike traditional ones, captures salient features of a decentralized network. In the framework I propose, network users forecast the transactional and resale value of bitcoin holdings and consider the risk of a network attack.
Miners contribute resources that enhance network security and compete for mining rewards received in units of the same token used by consumers. In equilibrium, the overall production of network security and the bitcoin price are jointly determined. Put simply, price does not follow the system hashrate and the hashrate does not passively follow the price either.
I develop several empirical predictions that show how the characteristics of network technologies and participants, users and miners, affect the number and dynamic stability properties of equilibria.
Regarding reward halvings, I find that the relation between bitcoin prices and the supply growth rate is not monotonic: the same price is consistent with different rates. The model’s outcomes demonstrate how intrinsic price–security feedback effects can amplify or moderate the price volatility effect of demand and supply shocks. I find rational patterns of price momentum with frequent booms and crashes and that small and large bubbles can exist in equilibrium and show how the probability of bursting decreases with the bitcoin price.
Earlier this year I published an article on the ‘Value of Bitcoin and Decentralized Network Assets’. I held an AMA on the topic, which can be seen here: https://www.reddit.com/r/Bitcoin/comments/8c05vr/hi_rbitcoin_im_emiliano_pagnotta_assistant/
- My research focuses on the exchange and valuation of financial assets and the organization and evolution of the markets where those assets trade in.
- Recently, my work analyzes the consequences of speed and fragmentation in financial markets, the identification of private information in stock and derivatives markets, and the valuation of Bitcoin and other blockchain assets. This research is regularly presented in leading academic and professional conferences and published in academic journals such as Econometrica.
- Before joining Imperial College, I was at the New York University Stern School of Business. I hold a Ph.D. in Economics from Northwestern University.
I’ll be back at 10am ET Wednesday 28 Nov to answer your questions, ask me anything!