Bitcoin – a currency or an asset?

Abstract

Cryptocurrencies is a part of the fast growing fintech market. Bitcoin is the first\ncryptocurrency, but also the currency with the largest market share. Bitcoin was created in\n2009, by Satoshi Nakamoto, and have in the years since its release faced very volatile\nexchange rates. The purpose of Bitcoin is to create a currency that allows payments to be sent\nfrom one party to another without going through a financial institution. The volatile exchange\nrate, and Bitcoins attributes has raised the question of how to define Bitcoin. This thesis\nanswers the research question: Bitcoin – a Currency or an Asset?\nThe thesis defines what is fiat currency, monetary theory and monetary value, in addition to\nthe asset classes capital assets, consumable/transferable asset and store of value assets.\nBitcoin’s attributes are discussed in light of these definitions. Also included in the background\nare the governmental views on Bitcoin. Here the thesis focuses on how cryptocurrency is\nhandled by legislators. In Japan cryptocurrencies are deemed legal tender, in the E.U. it is\ndefined as currency, in the U.S. Bitcoin is defined as a commodity, while other\ncryptocurrencies is defined as securities, in China government has issued a ban on all\ncryptocurrency. The empirical part of this thesis is made up by time series regressions and\nrolling window regression using Bitcoin exchange rates, price of gold, OFRS financial stress\nindex, S&P 500 and the federal funds rate as parameters.\nBitcoin is designed to function as a currency, but lack of acceptance in the economy causes\nproblems for the users. The volatile exchange rate also causes problems as it makes Bitcoin\nworthless as a measurement of value, and also difficult to use Bitcoin for consumption.\nFindings from the time series regressions and the rolling window regressions indicate that the\nBitcoin’s exchange rate follows the asset market. When the S&P 500 increases and the OFR\nfinancial stress index is negative, indicating low stress in the financial market, the Bitcoin\nexchange rate increases. The exchange rate is also positively correlated with the price of gold.\nThe empirical evidence, together with the theoretical framework leads to the conclusion that\nBitcoin is an asset.