On the Value of Virtual Currencies

Abstract

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. ii Terms of use: Documents in EconStor may AbstractThis paper develops an economic framework to analyze the exchange rate of virtual currency. Three components are important: first, the current use of virtual currency to make payments; second, the decision of forward-looking investors to buy virtual currency (thereby effectively regulating its supply); and third, the elements that jointly drive future consumer adoption and merchant acceptance of virtual currency. The model predicts that, as virtual currency becomes more established, the exchange rate will become less sensitive to the impact of shocks to speculators' beliefs. This undermines the notion that excessive exchange rate volatility will prohibit widespread use of virtual currency. Bank topics: Asset pricing; E-money; Exchange rates JEL codes: E42, E51, F31, G1 RésuméNous construisons un modèle d'analyse pour cerner les facteurs qui influent sur le taux de change des monnaies virtuelles. Trois éléments importent : tout d'abord, l'utilisation actuelle d'une monnaie virtuelle comme moyen de paiement; ensuite, la décision d'investisseurs prospectifs d'acheter de la monnaie virtuelle (et de contrôler ainsi l'offre de ce type de monnaie); enfin, les facteurs qui détermineront ensemble l'adoption d'une monnaie virtuelle par les consommateurs et son acceptation par les commerçants. Selon les prévisions du modèle, lorsqu'une monnaie virtuelle devient plus établie, son taux de change devient moins sensible aux répercussions des changements non anticipés de croyance des spéculateurs. Ce résultat va à l'encontre de l'idée voulant que la très forte volatilité de leur taux de change empêchera la large diffusion des monnaies virtuelles. Sujets : Évaluation des actifs; Monnaie électronique; Taux de change Codes JEL : E42, E51, F31, G1 Non-Technical SummaryThis paper develops a theoretical framework to analyze the economic factors affecting the exchange rate for virtual currency. Virtual currencies, such as Bitcoin, represent both the emergence of a new form of currency and a new payment technology to purchase goods and services. These currencies may move outside the scope of current financial institutions, as they allow distant payments to be made directly between consumers and merchants without the use of any financial intermediaries. Moreover, their supply is not necessarily controlled by central banks, and speculative motives are widely believed to be an important factor for the value of virtual currencies.Sp...

Learning and predictability via technical analysis: Evidence from bitcoin and stocks with hard‐to‐value fundamentals

“…Dwyer (2015) explains how cryptocurrencies can have positive value given limited supply. Athey, Parashkevov, Sarukkai, and Xia (2016), Bolt and van Oordt (2016), and Pagnotta and Buraschi (2018) all provide models in which the value of cryptocurrencies depends on some combination of (1) usage and degree of adoption, (2) scarcity of Bitcoin, and (3) value of anonymity.…”

Cryptocurrencies and the Velocity of Money

“…2 Recent years saw the first advances to measure-instead of approximate-the velocity of money. In [2] and [3], the quantity equation of money has first been considered to measure velocity as the ratio of transaction volume and money supply. In [2], however, this approach is modified to create a measure handling the change transactions in cryptocurrency systems.…”

“…Economists like [1], [6], or [7] have argued to exclude such funds and focus on money in circulation. To our knowledge, [3] and [2] were the first to apply this distinction in theoretical cryptocurrency pricing models. Both link feedback effects from speculation and price levels to a reduction of coins in effective circulation.…”

“…Both link feedback effects from speculation and price levels to a reduction of coins in effective circulation. In [3], the velocity of money is explicitly defined as based on the component of coin supply in effective circulation. In this paper, we operationalize this definition for velocity measurement.…”

“…The other extreme might be a very restrictive definition requiring coins to be moved within the period for which velocity is measured. As the optimal time-window might depend on the respective use case, we operationalize a velocity measure for UTXO-based 3 cryptocurrencies as a function of the respective time-window.…”