Price Stability of Cryptocurrencies as a Medium of Exchange

JPS Conf. Proc. 36, 011001 (2021)

127 Pages Posted: 14 Nov 2021 Last revised: 17 Nov 2021

See all articles by Tatsuru Kikuchi

Tatsuru Kikuchi

Faculty of Economics, The University of Tokyo

Toranosuke Onishi

affiliation not provided to SSRN

Kenichi Ueda

University of Tokyo - Faculty of Economics

Date Written: November 11, 2021

Abstract

We present positive evidence of price stability of cryptocurrencies as a medium of exchange. For the sample years from 2016 to 2020, the prices of major cryptocurrencies are found to be stable, relative to major financial assets. Specifically, after filtering out the less-than-one-month cycles, we investigate the daily returns in US dollars of the major cryptocurrencies (i.e., Bitcoin, Ethereum, and Ripple) as well as their comparators (i.e., major legal tenders, the Euro and Japanese yen, and the major stock indexes, S\&P 500 and MSCI World Index). We examine the stability of the filtered daily returns using three different measures. First, the Pearson correlations increased in later years in our sample. Second, based on the dynamic time-warping method that allows lags and leads in relations, the similarities in the daily returns of cryptocurrencies with their comparators have been present even since 2016. Third, we check whether the cumulative sum of errors to predict cryptocurrency prices, assuming stable relations with comparators' daily returns, does not exceeds the bounds implied by the Black-Scholes model. This test, in other words, does not reject the efficient market hypothesis.

Suggested Citation

Kikuchi, Tatsuru and Onishi, Toranosuke and Ueda, Kenichi, Price Stability of Cryptocurrencies as a Medium of Exchange (November 11, 2021). JPS Conf. Proc. 36, 011001 (2021), Available at SSRN: https://ssrn.com/abstract=3961305 or http://dx.doi.org/10.2139/ssrn.3961305

Tatsuru Kikuchi (Contact Author)

Faculty of Economics, The University of Tokyo ( email )

7-3-1 Hongo
Bunkyo-ku
Tokyo, 113-0033
Japan

Toranosuke Onishi

affiliation not provided to SSRN

Kenichi Ueda

University of Tokyo - Faculty of Economics ( email )

7-3-1 Hongo, Bunkyo-ku
Tokyo 113-0033
Japan

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