Inflation Expectation and Cryptocurrency Investment
55 Pages Posted: 24 Aug 2023 Last revised: 23 Jan 2024
There are 2 versions of this paper
Inflation Expectation and Cryptocurrency Investment
IIM Bangalore Research Paper No. 695
Number of pages: 55
Posted: 24 Aug 2023
Last Revised: 03 Sep 2024
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Inflation Expectation and Cryptocurrency Investment
NBER Working Paper No. w32945
Number of pages: 56
Posted: 17 Sep 2024
Last Revised: 19 Sep 2024
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3
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: 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
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