Bitcoin allows for the buying, selling and exchanging of the cryptocurrency without the intermediary of a bank. Though Bitcoin does not rely on central authorities, like banks, it relies on block chain to execute transactions. The foundations of Bitcoin are based on the digital record, block chain. Block chain is a public record of Bitcoin transactions, where each chronological transaction is a called a block. The block chain is a public record for all Bitcoin users creating a permanent chain of transactions contributed by anyone within the Bitcoin organization. Bitcoin miners verify the transactions that have been added to the block chain through the process called proof work. In Bitcoin’s genesis, the proof work was manageable for average computers to solve the mathematical problems to ensure verification. Through the increase in popularity, the proof work for verification of blocks in the block chain have become more difficult and require more computing power. Each bitcoin that a user possesses is stored as a file in a digital wallet paired with a set of public and private keys. These keys allow for different actions with users bitcoin. A private key is a randomly generated string of numbers and letters that allow the bitcoin user to buy, sell or trade their bitcoin. While a public key is a cryptographic code that allows bitcoin users to receive bitcoin to their account.Typically used as an alternate to investments in stocks and bonds, Bitcoin is used to diversify investment portfolios.
Cryptocurrency Indices are designed to bring more clarity to an everchanging market. Cryptocurrency indices, like Bitcoin, are created using pricing data from a block chain. The S&P Cryptocurrency Index Series were created because of the emergence and growth of cryptocurrencies. They are becoming widely accepted and recognized where investors are incorporating cryptocurrencies into their portfolios. The Bitcoin Index is designed to measure the performance of a single bitcoin traded in US Dollars.
The goal is to analyze the historical trends of Bitcoin Closing Prices on the interval from January 1st, 2018 to June 28th, 2021. Through the analysis of the closing prices an options analysis will be applied to a Bitcoin Index to analyze how the value of Bitcoin will change over time using the Black-Scholes-Merton pricing formula.