CEU Electronic Theses and Dissertations, 2014
| Author | Dinu, Andrei Alexandru |
|---|---|
| Title | The scarcity of money: the case of cryptocurrencies |
| Summary | Five years after the introduction of the peer-to-peer payment system and digital currency bitcoin, cryptocurrencies have flourished and become a global phenomenon. Concerns regarding the impact of cryptocurrency on financial stability and the conduct of monetary policy have drawn regulatory scrutiny and formal policy stances on this emerging phenomenon. The main purpose of the present research is to determine whether cryptocurrencies are scarce and can, by this virtue, be regarded as money. Cryptocurrencies such as bitcoin and litecoin are programmed to have supply scarcity, however the fact that myriad digital coins can be created effortless by emulation raises the question of whether the total combined supply of this potential money is indeed scarce or not. The primary focus of the paper is to determine empirically if the two main cryptocurrencies, bitcoin and litecoin are actually perceived by the market as being different. In order to determine whether bitcoin and litecoin are perceived as similar or not by the market, I conduct an empirical analysis using daily closing price and trade volumes data from major exchanges Bitstamp and BTC-e. I calculate correlations on a monthly and weekly frequency to investigate price co-movement and its dynamics. Complementarity and substitutability for the entire sample and for 4 separate subsamples is formally analyzed through the calculation of direct price elasticities and of cross-price elasticities of volume. I show that in spite of negligible fundamental differences that would lead us to believe that the two cryptocoins are interchangeable and fungible to a great extent, the empirical landscape is more complex, with fair evidence in favor of substitutability, i.e. them being effectively perceived as different monies. The implication of this finding is that the supply scarcity of any individual coin is not placed under question by the potentially infinite aggregate supply of all cryptocurrencies. Cryptocurrencies can posses scarcity, and, other properties left aside, can be regarded as money. |
| Supervisor | Canidio, Andrea |
| Department | Economics MA |
| Full text | https://www.etd.ceu.edu/2014/dinu_andrei.pdf |
Visit the CEU Library.
© 2007-2021, Central European University