Bitcoin and the Demand for Money: Is Bitcoin More Than Just a Speculative Asset?
47 Pages Posted: 7 Dec 2018
Date Written: October 25, 2018
Is bitcoin money? We study the characteristics of bitcoin in the context of its use as money, following the theory of money demand first posited by Keynes (1935). Specifically, we answer three questions. First, is bitcoin used as a transactional currency? Yes. Second, is bitcoin used as a speculative currency? Yes. Third, is bitcoin used in a precautionary sense? No, although there are some weak results in support of this motive. We find this evidence using data on bitcoin returns and volume from 2010-2017, using a principal components analysis framework, supplemented with tests that incorporate specific elements of each component.
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