Adaptive network responses to financial shocks: evidence from Bitcoin transaction data

Bitcoin has evolved from being an alternative to becoming part of the global financial market, boasting 800 million users and institutional investors. This raises the question of whether digital assets and traditional financial markets exhibit similar dynamics, particularly during periods of uncertainty and global shocks. Bitcoin’s data is ideal for studying the effect of information shocks on micro-financial structures and informing current socio-economic research on network finance and uncertainty. To study how the structure of the Bitcoin transaction network evolves during periods of uncertainty, we examined 137 million transactions before and after the two most significant Bitcoin shocks: the 2014 Mt. Gox crisis and the 2020 pandemic. We focused on detecting network patterns that reveal uncertainty reduction mechanisms: inertia, trust, generalised exchange, and referral. Different adaptive patterns emerged: during the Mt. Gox crisis, the network changed long-term patterns while maintaining short-term stability; during the 2020 pandemic, however, the network adapted in the short term while maintaining long-term stability. We suggest that this adaptive asymmetry reflects institutional investors transmitting shocks in the short-term across parts of the global financial market while increasing Bitcoin stability. Our findings confirm that Bitcoin is now a systemically relevant part of the global financial market, raising the question of its institutional regulation.