The Dark Currency: An Analysis of the Relationship Between Dark Market Activity and Bitcoin Returns

Abstract

This body of research aims to study the relationship between two distinct disruptive technologies, Bitcoin, and the Dark Market, as both entities are used in tandem and are not mutually exclusive Dark Market consumers have adopted Bitcoin as the primary tender used for transactions, with circa 46% of all Bitcoin transactions being related to the sale of goods on the dark web. This study aims to determine a causal relationship between Dark Market activity and Bitcoin returns in an attempt to legitimise Bitcoin as a credible asset, determine Bitcoin price formation and aid in regulation formation and oversight. The results highlight no causal relationship between Dark Market activity and Bitcoin returns, however, an interesting takeaway of this study in terms of regulation is the causal relationship between Dark Market activity and the privacy coin, Monero. The contribution to the literature is noted in chapter five. The economic and regulatory significance of these results are also presented, which discuss Bitcoin price formation, and suggestions for a cryptocurrency regulatory trajectory.