Friday, 17 January 2014

Academic Paper: Is Bitcoin a Real Currency?

Now an acacdemic view on the bitcoin debate.    Is Bitcoin a real (whatever that means) currency?  Quick answer - no.  It behaves like a speculative investment.  I say, "give it time".  It will settle down, stablise and does work.

Is Bitcoin a Real Currency?" 

NBER Working Paper No. w19747
DAVID YERMACK, NYU Stern School of Business

Motivated by Bitcoin’s rapid appreciation in recent weeks, I examine its historical trading behavior to see whether it behaves like a traditional sovereign currency. Bitcoin has exchange rate volatility an order of magnitude higher than the volatilities of widely used currencies, undermining Bitcoin’s usefulness as a unit of account or a store of value. Bitcoin’s daily exchange rates exhibit virtually zero correlation with bona fide currencies, making Bitcoin useless for risk management purposes and exceedingly difficult for its owners to hedge. Bitcoin also lacks access to a banking system with deposit insurance, and it is not used to denominate consumer credit or loan contracts. Bitcoin appears to behave more like a speculative investment than like a currency.

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