Exploring the dynamics of Bitcoin’s price: a Bayesian structural time series approach WORKING PAPER Obryan Poyser * Universitat Autònoma de Barcelona June, 2017 Keywords: Cryptocurrencies, Bayesian time series, Blockchain, Bitcoin, Sentiment, Payment methods JEL: C11, C82, G15, E42 Abstract Currently, there is no consensus on the real properties of Bitcoin. The discussion comprises its use as A speculative or safe haven assets, while other authors argue that the increasing engagement could end accomplishing money’s functions as economic theory stipulates. This paper explores the association between Bitcoin’s market price and a set of internal and external factors using the Bayesian structural time series approach. This study aims to contribute to the discussion by including different attractiveness sources proxied by countries’ Google trends search data and performing a Bayesian variable selection through the Spike and Slab technique to find the most suitable variables. Additionally, the employed method provides a more flexible analytic framework to decompose each feature of the time series and dynamically examine the behaviour of the explanatory variables, all in a transparent and tractable setting. The results show that the Bitcoin price is negatively associated with gold’s price and the Yuan to USD exchange rate, while positively related to the stock market index, USD to Euro exchange rate and variated signs among the different countries’ search trends. Hence, I find that Bitcoin has mixed properties since still seems to act as a speculative, safe haven and a potential a capital flights instrument. * Email: obryan.poyser@uab.cat | Website: opoyc.github.io 1