Can the bitcoin be considered as a a currency or an asset? : A review of literature

Abstract

This study is based on academic literature rather than empirical analysis due to the absence of empirical data related to Bitcoin demand (currency vs. assets). This paper investigates Bitcoin's function as a financial asset (speculation, distribution, hedging, and safe assets) in the asset portfolio in terms of four aspects. First, some studies that show that Bitcoin cannot be recognized as a currency due to its lack of basic function as a currency, but many studies suggest the possibility of Bitcoin developing as a currency in the future. In order to monetize Bitcoin, tasks such as spreading adoption as a means of payment and settlement, establishing a legal system, and agreements between countries are placed. On the other hand, from an asset portfolio perspective, studies that refuse to recognize Bitcoin as a currency classify Bitcoin as a highly volatile profit-seeking speculative asset. Second, in terms of asset portfolios, Bitcoin is recognized as having a distributed function in correlation with other assets. Third, economic uncertainty indices recognize that Bitcoin has a hedge function against rapidly changing market volatility. Finally, Bitcoin is going to evolve like gold, although it is hitting the market, it has been found that it lacks functions as a safe asset such as gold. According to the literature review, Bitcoin's characteristics as an asset are not mutually exclusive with the financial asset characteristics of currency, raw materials, and stocks, and these characteristics mean that it can perform multiple financial asset functions of variance and hedge within the asset portfolio.