The volatility of Bitcoin and its role as a medium of exchange and a store of value

Bitcoin is designed as a peer-to-peer cash system. To work as a currency, it must be stable or be backed by a government. In this paper, we show that the volatility of Bitcoin prices is extreme and almost 10 times higher than the volatility of major exchange rates (US dollar against the euro and the...

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Detalles Bibliográficos
Autores principales: Baur, Dirk G., Dimpfl, Thomas
Formato: Online Artículo Texto
Lenguaje:English
Publicado: Springer Berlin Heidelberg 2021
Materias:
Article
Acceso en línea:https://www.ncbi.nlm.nih.gov/pmc/articles/PMC7783506/
https://www.ncbi.nlm.nih.gov/pubmed/33424101
http://dx.doi.org/10.1007/s00181-020-01990-5
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author Baur, Dirk G.
Dimpfl, Thomas
author_facet Baur, Dirk G.
Dimpfl, Thomas
author_sort Baur, Dirk G.
collection PubMed
description Bitcoin is designed as a peer-to-peer cash system. To work as a currency, it must be stable or be backed by a government. In this paper, we show that the volatility of Bitcoin prices is extreme and almost 10 times higher than the volatility of major exchange rates (US dollar against the euro and the yen). The excess volatility even adversely affects its potential role in portfolios. Our analysis implies that Bitcoin cannot function as a medium of exchange and has only limited use as a risk-diversifier. In contrast, we use the deflationary design of Bitcoin as a theoretical basis and demonstrate that Bitcoin displays store of value characteristics over long horizons.
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spelling pubmed-77835062021-01-05 The volatility of Bitcoin and its role as a medium of exchange and a store of value Baur, Dirk G. Dimpfl, Thomas Empir Econ Article Bitcoin is designed as a peer-to-peer cash system. To work as a currency, it must be stable or be backed by a government. In this paper, we show that the volatility of Bitcoin prices is extreme and almost 10 times higher than the volatility of major exchange rates (US dollar against the euro and the yen). The excess volatility even adversely affects its potential role in portfolios. Our analysis implies that Bitcoin cannot function as a medium of exchange and has only limited use as a risk-diversifier. In contrast, we use the deflationary design of Bitcoin as a theoretical basis and demonstrate that Bitcoin displays store of value characteristics over long horizons. Springer Berlin Heidelberg 2021-01-05 2021 /pmc/articles/PMC7783506/ /pubmed/33424101 http://dx.doi.org/10.1007/s00181-020-01990-5 Text en © Springer-Verlag GmbH Germany, part of Springer Nature 2021 This article is made available via the PMC Open Access Subset for unrestricted research re-use and secondary analysis in any form or by any means with acknowledgement of the original source. These permissions are granted for the duration of the World Health Organization (WHO) declaration of COVID-19 as a global pandemic.
spellingShingle Article
Baur, Dirk G.
Dimpfl, Thomas
The volatility of Bitcoin and its role as a medium of exchange and a store of value
title The volatility of Bitcoin and its role as a medium of exchange and a store of value
title_full The volatility of Bitcoin and its role as a medium of exchange and a store of value
title_fullStr The volatility of Bitcoin and its role as a medium of exchange and a store of value
title_full_unstemmed The volatility of Bitcoin and its role as a medium of exchange and a store of value
title_short The volatility of Bitcoin and its role as a medium of exchange and a store of value
title_sort volatility of bitcoin and its role as a medium of exchange and a store of value
topic Article
url https://www.ncbi.nlm.nih.gov/pmc/articles/PMC7783506/
https://www.ncbi.nlm.nih.gov/pubmed/33424101
http://dx.doi.org/10.1007/s00181-020-01990-5
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