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The Evolving Liaisons between the Transaction Networksof Bitcoin and its Price Dynamics

Cryptocurrencies (the most paradigmatic blockchain-based systems) are distributed systems that allow to exchange tokens among participants. These cryptocurrencies can also be acquired in exchange markets. The availability of the historical bookkeeping of cryptocurrency transfers in a public ledger opens up the possibility of understanding the relationship between aggregate users’ behaviour and the cryptocurrency pricing in exchange markets. This paper analyses the properties of the transaction network of Bitcoin. We consider different representations over a period of nine years since its creation and involving 16 million users and 283 million transactions. Importantly, these transactions do not include orders filled in exchange markets, which are settled outside of the blockchain, and ultimately determine Bitcoin price. By analysing these networks, we show the existence of Granger causal relationships between Bitcoin price movements and changes of its transaction network topology. Our results reveal the interplay between structural quantities, indicative of the collective behaviour of Bitcoin users, and price movements, showing that, during price drops, the system is characterised by a larger heterogeneity of users’ activity.