Does bitcoin behave like a traditional currency?
Date
2014-12
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Abstract
Bitcoin is the first in a new class of technological innovations known as cryptocurrencies. It enables low-cost, secure transactions around the world without the need for a central bank or similar agency. However, Bitcoin has been criticized as it does not fulfill the classical functions of a traditional currency. Additionally, its peer-to-peer decentralized design is a unique development that bears great contrast to established fiat currencies. The novel but volatile nature of Bitcoin has led to much consternation regarding its classification and subsequent regulation. As such, this study attempts to analyze the historical prices of Bitcoin and other currencies in order to determine whether its behavior is significantly different from traditional fiat currencies. Using four empirical methods, (i) price correlations, (ii) Granger causality tests, (iii) stationarity tests, and (iv) cointegration tests, the study seeks to determine whether Bitcoin can be considered part of the same market as its traditional counterparts. The results show that Bitcoin behaves differently from fiat currencies and should be treated as an asset belonging to a separate market.
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Bitcoin, cryptocurrency, currency, regulation, comovement