Archive for December 23rd, 2013

Bitcoin like a currency or like a speculative investment?

December 23, 2013

David Yermack of New York University has this interesting paper on Bitcoin

He looks at various features of bitcoin and compares it to some dominant currencies. He says there is huge volatility and it resembles more like a speculative investment and not currency:

Motivated by Bitcoin’s rapid appreciation in recent weeks, I examine its historical trading behavior to see whether it behaves like a traditional sovereign currency. Bitcoin has exchange rate volatility an order of magnitude higher than the volatilities of widely used currencies, undermining Bitcoin’s usefulness as a unit of account or a store of value. Bitcoin’s daily exchange rates exhibit virtually zero correlation with bona fide currencies, making Bitcoin useless for risk management purposes and exceedingly difficult for its owners to hedge. Bitcoin also lacks access to a banking system with deposit insurance, and it is not used to denominate consumer credit or loan contracts. Bitcoin appears to behave more like a speculative investment than like a currency.

It is still early days and one would get such results as really bitcoin value has been highly volatile. Comparing it to currencies ike USD, Euro etc is just not right. I mean how can a currency match these giants in such little time that too without any political backing.

But still nice summary of the whole debate. It is these parameters on which bicoin is likely to be judged in future..

Economic Possibilities for Our Children..Larry Summers edition

December 23, 2013

Keynes wrote a paper on the same topic.

Now we have Larry Summers who explores the subject in 2013 Martin Feldstein Lecture.


%d bloggers like this: