Does Fiat-to-Bitcoin Exchange Activity Lead to Increased User-to-User Bitcoin Transaction Activity?
Applied Economics Research Bulletin Peer-Reviewed Working Paper, 2017
6 Pages Posted: 20 Nov 2017 Last revised: 7 Jun 2018
Date Written: March 1, 2017
I exploit the "perfect ledger" feature of Bitcoin to find the degree to which Bitcoin-to-fiat exchange activity is associated with increased user-to-user transactions on the Bitcoin network with two distinct but complementary methodologies. First, I use an instrumental variable strategy to estimate the elasticity of user-to-user Bitcoin transaction activity with respect to fiat-to-Bitcoin exchange activity. Secondly, I use vector autoregression to determine the dynamic effects of fiat-to-Bitcoin exchange innovations in user-to-user Bitcoin transactions. In both approaches I find strong evidence of speculative hoarding of Bitcoin via the weak transmission of fiat-to-Bitcoin exchange activity to user-to-user Bitcoin network transactions.
Keywords: Bitcoin, Cryptocurrency, Speculation, Hoarding, Monetary Systems, Financial Economics
JEL Classification: G0, G1, G4
Suggested Citation: Suggested Citation