Is Bitcoin a viable e-business?: Empirical analysis of the digital currency's speculative nature

Abstract

Ever since its creation by the presumed pseudonymous Satoshi Nakamoto, Bitcoin has garnered significant attention as an innovative online payment system. The purpose of this paper is to discover the degree to which the participation of a Bitcoin user is dependent on the speculative opportunities in the Bitcoin market and, accordingly, to test Bitcoin’s competence against traditional currency. Using a panel data set from one of the largest Bitcoin traders in Asia, we find that $1 increase in arbitrage between market prices is associated with 0.1 more log-ins of users. However, the paper also suggests that such a speculative nature might not be strong enough to dominate user behaviors entirely. The findings report that the actual reason for Bitcoin’s incompetence as a form of currency against the conventional tools of trade may be attributable to its low level of network effects.