Does Bitcoin behave as a currency?: A standard monetary model approach

【Author】 Hui, Cho-Hoi; Lo, Chi-Fai; Chau, Po-Hon; Wong, Andrew

【Source】INTERNATIONAL REVIEW OF FINANCIAL ANALYSIS

【影响因子】8.235

【Abstract】We derive the Bitcoin exchange rate dynamics by solving the exchange rate equation of the standard flexible - price monetary model to investigate any characteristics of Bitcoin like a currency. The dynamics is driven by an asymmetric mean -reverting fundamental shock which can be attributed to a money demand shock. A crash occurs when the exchange rate with a weakened mean -reverting force breaches a lower boundary where a smooth -pasting condition is imposed. The empirical results show the exchange rate dynamics can be calibrated according to the model, in which the mean reversion of the dynamics is positively co -integrated with the Bitcoin transaction volume indicating demand for Bitcoin; and with the risk reversals of the commodity currencies (Australian dollar and Canadian dollar) in currency option markets. The analysis shows that the Bitcoin ex- change rate shares some characteristics of commodity currencies with crash risk. This suggests that Bitcoin behaves as a currency between fiat money and a crypto-commodity used for trading and investment purposes.

【Keywords】Bitcoin; Money demand; Currency crash; Flexible-price monetary model; Commodities

【发表时间】2020 JUL

【收录时间】2022-01-02

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