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Bitcoin Pricing, Adoption, and Usage: Theory and Evidence

70 Pages Posted: 21 Aug 2016 Last revised: 7 Sep 2016

Susan Athey

Stanford Graduate School of Business

Ivo Parashkevov

Independent

Vishnu Sarukkai

Graduate School of Business - CIRCLE

Jing Xia

Harvard University

Date Written: August 1, 2016

Abstract

This paper develops a model of user adoption and use of virtual currency (such as Bitcoin), and focusing on the dynamics of adoption in the presence of frictions arising from exchange rate uncertainty. The theoretical model can be used to analyze how market fundamentals determine the exchange rate of fiat currency to Bitcoin. Empirical evidence from Bitcoin prices and utilization provides mixed evidence about the ability of the model to explain prices. Further analysis of the history of all individual transactions on Bitcoin’s public ledger establishes patterns of adoption and utilization across user types, transaction type, and geography. We show that as of mid-2015, active usage was not growing quickly, and that investors and infrequent users held the majority of Bitcoins. We document the extent to which the attributes of the anonymous users of Bitcoin can be inferred through their behavior, and we find that users who engage in illegal activity are more likely to try to protect their financial privacy.

Suggested Citation

Athey, Susan and Parashkevov, Ivo and Sarukkai, Vishnu and Xia, Jing, Bitcoin Pricing, Adoption, and Usage: Theory and Evidence (August 1, 2016). Stanford University Graduate School of Business Research Paper No. 16-42. Available at SSRN: https://ssrn.com/abstract=2826674

Susan Carleton Athey (Contact Author)

Stanford Graduate School of Business ( email )

655 Knight Way
Stanford, CA 94305-5015
United States

Ivo Parashkevov

Independent ( email )

No Address Available

Vishnu Sarukkai

Graduate School of Business - CIRCLE ( email )

655 Knight Way
Stanford, CA 94305-5015
United States

Jing Xia

Harvard University ( email )

1875 Cambridge Street
Cambridge, MA 02138
United States

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