Extrapolative Beliefs About Bitcoin Returns

Using data on investor beliefs about future Bitcoin prices, we examine how investors form expectations about Bitcoin returns. We find that investors extrapolate from Bitcoin’s past returns, with more weight on recent returns. Compared to institutional investors, such extrapolative beliefs are stronger among individuals. Overall, past Bitcoin returns die out relatively slowly in investors’ memory. The extrapolative component of beliefs predicts future Bitcoin returns with a positive sign in the short term and a negative sign in the long term