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

See all articles by David Vitt

David Vitt

Farmingdale State College

Date Written: March 1, 2017

Abstract

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

Vitt, David, Does Fiat-to-Bitcoin Exchange Activity Lead to Increased User-to-User Bitcoin Transaction Activity? (March 1, 2017). Applied Economics Research Bulletin Peer-Reviewed Working Paper, 2017. Available at SSRN: https://ssrn.com/abstract=3072435 or http://dx.doi.org/10.2139/ssrn.3072435

David Vitt (Contact Author)

Farmingdale State College ( email )

School of Busines
Farmingdale, NY 11735

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