Inflation Expectation and Cryptocurrency Investment

55 Pages Posted: 24 Aug 2023 Last revised: 23 Jan 2024

See all articles by Lin William Cong

Lin William Cong

Cornell University - Samuel Curtis Johnson Graduate School of Management; National Bureau of Economic Research (NBER)

Pulak Ghosh

Indian Institute of Management (IIMB), Bangalore

Jiasun Li

George Mason University - Department of Finance

Qihong Ruan

Cornell University, Ithaca, New York

Multiple version iconThere are 2 versions of this paper

Date Written: January 15, 2024

Abstract

Using proprietary data from the predominant cryptocurrency exchange in India together with the country's Household Inflation Expectations Survey, we document a significantly positive association between inflation expectations and individual cryptocurrency purchases. Higher inflation expectations are also associated with more new investors in cryptocurrencies. We investigate investment heterogeneity in multiple dimensions, and find the effect to be concentrated in Bitcoin (BTC) and Tether (USDT) trading. The results are robust after controlling for speculative demand captured by surveys of investors' expected cryptocurrency returns, and admit causal interpretations as confirmed using multiple instrumental variables. Our findings provide direct evidence that households already adopt cryptocurrencies for inflation hedging, which in turn rationalizes their high adoption in developing countries without a globally dominant currency.

Keywords: Inflation Hedge, Expectations, Household Survey, Cryptocurrency, FinTech

Suggested Citation

Cong, Lin and Ghosh, Pulak and Li, Jiasun and Ruan, Qihong, Inflation Expectation and Cryptocurrency Investment (January 15, 2024). IIM Bangalore Research Paper No. 695, Available at SSRN: https://ssrn.com/abstract=4549475 or http://dx.doi.org/10.2139/ssrn.4549475

Lin Cong

Cornell University - Samuel Curtis Johnson Graduate School of Management ( email )

Ithaca, NY 14853
United States

HOME PAGE: http://www.linwilliamcong.com/

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Pulak Ghosh

Indian Institute of Management (IIMB), Bangalore ( email )

Bannerghatta Road
Bangalore, Karnataka 560076
India

Jiasun Li

George Mason University - Department of Finance ( email )

Fairfax, VA 22030
United States

HOME PAGE: http://sites.google.com/view/jiasunli

Qihong Ruan (Contact Author)

Cornell University, Ithaca, New York ( email )

New York
United States

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