This thesis explores the volatility connectedness between Bitcoin and economic uncertainty. We aim to model reactions of Bitcoin's volatility to shocks in economic uncertainty to uncover whether Bitcoin can provide protection from an economic unrest. The uncertainty is assessed from the media-based Eco- nomic Policy Uncertainty (EPU) Index, the market-based VIX Index and the public-based Economic Queries Related Uncertainty (EURQ) Index. Using the dynamic network connectedness measure, it is possible to track the time evolu- tion of directional volatility spillovers in each time point of our dataset spanning from April 2015 to February 2022. Our results show several significant periods when Bitcoin receives volatility spillovers from economic uncertainty. However, in most cases, the e ect is weak. One exception is the COVID-19 crisis, during which Bitcoin forms a substantial volatility connectedness with the VIX Index. We also show that before 2020, Bitcoin reacts to several shocks driven by the EPU Index. Further, amid inflation fears at the end of 2021, the volatility spillovers mainly originate from the EURQ Index.
As financial crises became more frequent during recent decades, so also have books about them, as well as about crises that occurred centuries earlier. These studies tend to come in three styles: (1) narratives of one or more crises, usually by historians and journalists; (2) financial-economic-heuristic models of the typical patterns or essential stages of crises, as illustrated by historical examples, often adduced by financial economists with historical interests; and (3) large-scale data assemblies and econometric analyses covering decades or centuries of crises by economists.1Boom and Bust, written by two financial economists who observed firsthand from their posts in Belfast the devastating effects of the global financial crisis from 2007 to 2009 on Ireland, combines styles 1 and 2. The authors call their simple model “the bubble triangle.” Its three sides (with analogies to a fire) are marketability (oxygen), money and credit (fuel), and speculation (heat). Financial bubbles form when it is easy to buy and sell assets, when ample money and credit is available to finance speculative purchases, and when people are in a mood to speculate. These, however, are only necessary conditions for a bubble. They become sufficiently hot to inflate a bubble only with the right spark, which the authors contend can come from either of two sources, a captivating technological breakthrough (for example, the internet leading to the “dot com” bubble) or governmental policies that cause a rise in asset prices (for example, home-ownership policies leading to the sub-prime bubble).The authors develop narratives of several bubbles and then analyze each of them using their bubble-triangle framework. Some of the cases—the Mississippi and South Sea bubbles of 1719/20, the British railway mania of the 1840s, the Wall Street stock bubble of the late 1920s, Japan’s stock and real-estate bubble of the 1980s, and the recent “dot com” and sub-prime bubbles—are familiar to financial historians. Others such as the Australian real-estate bubble of the 1880s and the British bicycle mania of the 1890s are more obscure.The book’s discussion and analysis of two stock-market bubbles in China, in 2007 and 2015, is particularly useful because these bubbles are recent and not well known. In each instance, the Chinese authorities engineered a bubble to advance a policy goal. In 2007, the authorities wanted to privatize government-owned untraded shares in state-owned enterprises into privately owned tradable shares, and a bubble eased achievement of the goal. In 2015, after encouraging massive private-sector borrowing to alleviate the impact of the global crisis from 2007 to 2009, China’s authorities hoped that a new stock bubble would allow companies to raise equity capital on easy terms and use it to reduce their bloated debts. China’s 2015 bubble promoted debt for equity swaps to ease corporate debt burdens in the same way that John Law’s Mississippi bubble and the South Sea Company’s bubble did in 1719/20 to ease the debt burdens of the French and British governments. Financial history is cyclical, forever blowing bubbles.Quinn and Turner tout their model as predictive. A test of its predictive power seems underway (as of mid-2021), when the S&P 500 stock index hit an all-time high. All the authors’ necessary conditions for a bubble scenario appear to be in place. Competition of financial firms for assets and trades has made the marketability of stocks and other assets easier and cheaper than ever before. The Federal Reserve roughly doubled its balance sheet over the past year, vastly expanding the supply of money and credit. To fight the economic slowdown caused by the Covid-19 pandemic, Congress enacted trillions of dollars of fiscal stimulus, with more on the way. Signs of speculative excesses abound, with names such as Archegos, Bitcoin, Credit Suisse, GameStop, Greensill, non-fungible tokens (nfts), Nomura, Reddit, Robinhood, and special-purpose acquisition companies (spacs) attached to them. So far, none of these potential sparks has started the deflation of a bubble, if indeed there is one in mid-2021. Conventional wisdom, challenged by Quinn and Turner, holds that we can know a bubble only after it bursts. By the time this review is published, we may have some test results.
Abstract The BCS Financial Services Specialist Group compresses over 2,000 years of history and explains how we moved from using gold coins to being on the brink of governments issuing their own central bank digital currencies.
Digitalization of Money is a crossroad in monetary history. Advances in technology has led to the development of new forms of money: virtual (crypto) currencies like bitcoin; stable coins like libra/diem; and central bank digital currencies (CBDC) like the Bahamian sand dollar. These innovations in money and finance have resonance to earlier shifts in monetary history: 1) The shift in the eighteenth and nineteenth century from commodity money (gold and silver coins) to convertible fiduciary money and inconvertible fiat money; 2) the shift in the nineteenth and twentieth centuries from central bank notes to a central bank monopoly; 3) Then evolution since the seventeenth century of central banks and the tools of monetary policy. This paper analyzes the arguments for a CBDC through the lens of monetary history. The bottom line is that the history of transformations in monetary systems suggests that technical change in money is inevitably driven by the financial incentives of a market economy. Government has always had a key role in the provision of outside money, which is a public good. Government has also regulated inside money provided by the private sector. This held for fiduciary money and will likely hold for digital money. CBDC could make monetary policy more efficient, and it could transform the international monetary and payments systems.
This discussion applies quantitative finance methods and economic arguments to cryptocurrencies in general and bitcoin in particular -- as there are about $10,000$ cryptocurrencies, we focus (unless otherwise specified) on the most discussed crypto of those that claim to hew to the original protocol (Nakamoto 2009) and the one with, by far, the largest market capitalization. In its current version, in spite of the hype, bitcoin failed to satisfy the notion of "currency without government" (it proved to not even be a currency at all), can be neither a short nor long term store of value (its expected value is no higher than $0$), cannot operate as a reliable inflation hedge, and, worst of all, does not constitute, not even remotely, a safe haven for one's investments, a shield against government tyranny, or a tail protection vehicle for catastrophic episodes. Furthermore, bitcoin promoters appear to conflate the success of a payment mechanism (as a decentralized mode of exchange), which so far has failed, with the speculative variations in the price of a zero-sum maximally fragile asset with massive negative externalities. Going through monetary history, we show how a true numeraire must be one of minimum variance with respect to an arbitrary basket of goods and services, how gold and silver lost their inflation hedge status during the Hunt brothers squeeze in the late 1970s and what would be required from a true inflation hedged store of value.
We apply quantitative finance methods and economic arguments to cryptocurrencies in general and bitcoin in particular -- as there are about $10,000$ cryptocurrencies, we focus (unless otherwise specified) on the most discussed crypto of those that claim to hew to the original protocol (Nakamoto, 2009) and the one with, by far, the largest market capitalization.
In its current version, in spite of the hype, bitcoin failed to satisfy the notion of without (it proved to not even be a currency at all), can be neither a short nor long term store of value (its expected value is no higher than $0$), cannot operate as a reliable inflation hedge, and, worst of all, does not constitute, not even remotely, a safe haven for one's investments, a shield against government tyranny, nor a tail protection vehicle for catastrophic episodes.
Furthermore, there appears to be an underlying conflation between the success of a payment mechanism (as a decentralized mode of exchange), which so far has failed, and the speculative variations in the price of a zero-sum asset with massive negative externalities.
Going through monetary history, we also show how a true numeraire must be one of minimum variance with respect to an arbitrary basket of goods and services, how gold and silver lost their inflation hedge status during the Hunt brothers squeeze in the late 1970s and what would be required from a true inflation hedged store of value.
The Internet of Value (IOV) with its distributed ledger technology (DLT) underpinning has created new forms of lending markets. As an integral part of the decentralised finance (DeFi) ecosystem, lending protocols are gaining tremendous traction, holding an aggregate liquidity supply of over $40 billion at the time of writing. In this paper, we enumerate the challenges of traditional money markets led by banks and lending platforms, and present advantageous characteristics of DeFi lending protocols that might help resolve deep-rooted issues in the conventional lending environment. With the examples of Maker, Compound and Aave, we describe in detail the mechanism of DeFi lending protocols. We discuss the persisting reliance of DeFi lending on the traditional financial system, and conclude with the outlook of the lending market in the IOV era.
Central Bank Digital Currencies (CBDCs) have captured the attention of world leaders. The current conversation is dominated by high-level motivations like the efficiency benefits of a cashless society. This discourse neglects the potential use of CBDC data for new analytics capabilities. This thesis makes three main contributions to that end. First, it identifies and explores the inherent challenges of analyzing blockchain data (as a proxy for future CDBC data), making future design recommendations where possible. Second, it develops a novel technique to extract useful sector-based macro-economic data from pseudonymous transaction data, using the Ethereum blockchain as a case study. This also enables a novel breakdown of the Ethereum ecosystem by actor type. Third, it unearths evidence new insights about the public blockchain ecosystem, for example that Ethereum users are becoming more sophisticated over time and that Initial Coin Offerings (ICOs) may have caused the 2018 cryptocurrency bubble.
T Diana Cristina Bueno, Julio Cesar de (Org.) Aguiar
The purpouse of this paper is analyse if the called bitcoin can be defined as currency.Therefore, first is analysed the bitcoin tecnology, specially its structuring from the encryption development by blockchain. The main characteristics of this technological structure are studied, wich allowed its fast diffusion, with the sufficient confidence and security in the transactions, at low cost, without the intervention of third parties, be it the State or the banking system.Later, the study turns to the concept of money, from the economic point of view, under the focus of the main theories developed. At this point, a special analysis is made from the studies of the Austrian school of economics, especially by Luwig von Mises and his regression theorem, developed to explain the origin of the currency. Once these parameters have been established, bitcoin attributes are analyzed, having this paper concluded that its volatility and lack of liquidity prevent, for the moment, its characterization as currency. It should be noted that this paper serves as a starting point for future work on the legal effects of bitcoin, in particular in criminal law. However, it is necessary to define the nature of bitcoin.
Crises frequently weaken subnational governments but in some cases they lead to greater decentralization. Does this decentralization, however, support the search for optimal crisis response strategies? Generally speaking there are several arguments, which suggest that decentralized systems will manage crises better than centralized ones. This article, however, considers two scenarios (decentralization of weakness and decentralization of responsibility) where the apparently increasing autonomy of subnational governments leads to important problems. Decentralization of weakness emerges when the central government for certain reasons refuses to actively implement an anti-crisis policy. Under these conditions, regional measures, while to some extent compensating the inactivity of the central government, create a number of other problems - that of external effects, possible ideologization of politics and insufficient use of expert knowledge. Decentralization of responsibility emerges when regions accept responsibility for implementing anti-crisis measures, but the center keeps control over resources - thus, regions have to focus on competing for central financing. For the modern Russia, the risks of these two scenarios are substantial.
This paper aims to examine the relationship between Bitcoin and preeminent financial indicators using Copula-GARCH method. In the study, we use closing prices of Bitcoin and US 10-Year Bond Yield, Gold Spot US Dollar, US Dollar Index, S&P 500, FTSE 100 and NIKKEI 225. To our knowledge, our paper is the first to examine this issue empirically. Analysis results show that there is no strong interdependence between Bitcoin and preeminent financial indicators. These findings provide new information that will benefit policy makers, banks, financial investors, and risk managers in trading activities for both long-term and short-term strategies.
The paper highlights why, contrary to frequent claims, cryptocurrencies will not replace the existing monetary system. The reason is that despite its shortcomings the current monetary system is a product of a long evolution which had adjusted it to the needs of the economy. Cryptocurrencies will probably remain what they have been during the last decade, i.e. the popular speculative assets and the means of payment used – due to their anonymity – for illicit operations. The recent monetary system, based on deposit money issued by commercial banks, will not be replaced also by deposit money issued by central banks (Central Bank Digital Currency) as the CBDC would lack a rational mechanism of its allocation and would pose risks to financial stability
Distributed ledger technology, also known as the blockchain, is gaining traction globally. Blockchain offers a secure validation mechanism and decentralized mass collaboration. Cryptocurrencies make use of this technology as a new asset class for investors worldwide. Cryptocurrencies are being used by companies to raise capital via initial coin offerings (ICOs). The substantial inflow of unregulated capital into a transactional and transnational industry has aroused interest from not just investors, but also national securities and monetary regulatory agencies. In this paper, we review the Security and Exchange Commission’s initial statements and subsequent pronouncements on ICO’s to illustrate the potential problems with applying an older legal framework to an ever-evolving ecosystem. Recognizing the inability of enforcement within existing regulatory frameworks, we discuss the importance of regulation of the crypto asset class and internal collaboration between government agencies and developers in the establishment of an ecosystem that integrates investor protection and investments.
Ekrem Tufan, Hasan Gül, Özgür Manap, Bahattin Hamarat
Crypto currencies whose traders are not known, affect the world economy. In thiscase, it is possible to assert that an international terrorist organization can also trade them.In the market, Bitcoin is well-known and regarding volume is a leader crypto currencybetween the crypto currencies. In this paper, it has been searched if there could be a strong correlationbetween bitcoin prices and ISIS. As methodology it has been checked ISIS attacks and Bitcoin pricesrelation, by graphics. <br>
Open access
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Blockchain Technology Applications and Security
Economic, financial, and policy analysis
Terrorism, Counterterrorism, and Political Violence
The cryptocurrency market is unique on many levels: Very volatile, frequently changing market structure, emerging and vanishing of cryptocurrencies on a daily level. Following its development became a difficult task with the success of cryptocurrencies (CCs) other than Bitcoin. For fiat currency markets , the IMF offers the index SDR and, prior to the EUR, the ECU existed, which was an index representing the development of European currencies. Index providers decide on a fixed number of index constituents which will represent the market segment. It is a challenge to fix a number and develop rules for the constituents in view of the market changes. In the frequently changing CC market, this challenge is even more severe. A method relying on the AIC is proposed to quickly react to market changes and therefore enable us to create an index, referred to as CRIX, for the cryptocurrency market. CRIX is chosen by model selection such that it represents the market well to enable each interested party studying economic questions in this market and to invest into the market. The diversified nature of the CC market makes the inclusion of altcoins in the index product critical to improve tracking performance. We have shown that assigning optimal weights to altcoins helps to reduce the tracking errors of a CC portfolio, despite the fact that their market cap is much smaller relative to Bitcoin. The codes used here are available via www.quantlet.de .
Objective: to consider the features of centralized and decentralized monetary systems development and to identify the necessary conditions for the transition of the national economy to decentralized network platforms operating within the distributed ledger technology, public and private digital currencies.Methods: a systemic approach to the cognition of economic phenomena, enabling to study them in dynamic development, taking into account the influence of various environmental factors. The systemic approach determined the choice of specific research methods: empirical, historical, logical, comparative and statistical.Results: the article considers different approaches to the organization of money issue. It is shown that the era of the centralized monetary system, based on the issue of Central banks, has come to its end. The Central bank is the main link of the centralized monetary system, while in the context of 2008 financial crisis the functions of the Central Bank as the lender of last resort were significantly expanded by changing the paradigm of the monetary mechanism. It is established that the new monetary mechanism has become the main channel of money supply in the economy, while the main factors of the new monetary supply formation are the reserve money of Central banks, new Basel standards and high requirements for borrowers. This monetary policy and the centralization of the financial market have led to a distortion of the market pricing mechanism in the monetary market and to the disruption of competition in the financial intermediation market. The author analyzes the new trends in the emergence of a decentralized monetary system in the world economy based on public and private digital currencies issued by users of distribution computer networks. The article shows the mechanism and technology of crypto currency emission, which implies the use of public or private blockchain without any participation of the Central bank and other financial intermediation institutions.Scientific novelty: for the first time, the article shows that the era of centralized monetary system based on monopoly issue by Central banks, has come to its logical end; a decentralized monetary system is emerging in the world economy today, based on public and private issue of digital currency; in the course of legalization, growth of scalability, confidentiality, validation and tokenization of real assets, the crypto currencies will become a liquid and less volatile monetary asset.Practical significance: the main provisions and conclusions of the article can be used to clarify the target mandates, tools, channels and mechanisms of monetary policy of the Bank of Russia, capable of launching a decentralized crypto currency market, acting as a built-in stabilizer of financial sustainability and elastic regulation of trade and financial imbalances within the country and between countries.
This chapter examines how Bitcoin came to secure a place as money at the margins of the global monetary system by focusing on the possibly most controversial question surrounding Bitcoin. It examines the topic of theorizing money. The chapter discusses the initial positioning of Bitcoin against the dominant money game. It develops the original three phases that defined the evolution of Bitcoin as a money game based on evaluation of recent journalist, academic, and governmental publications. The chapter summarizes how the Bitcoin money game changed and shifted since its inception, and how this might affect other existing money games. Bitcoin was initially positioned as a clear criticism of the two-level money system consisting of central banks and commercial banks. The chapter examines the development of the Bitcoin money game over time to understand how Bitcoin could prevail despite starting off without any institutional underpinning or political backing.
The global financial safety net (GFSN) has become larger and more decentralized, creating a need for greater coordination. The expanded GFSN has created multiple sources of official financing for countries in need of support to address balance of payments shocks. Enhanced coordination among these layers would facilitate a more efficient use of global resources and provide better incentives for implementing sound policies. A new non-financing Policy Coordination Instrument (PCI) would address gaps in the GFSN and the Fund’s toolkit. The new Policy Coordination Instrument is designed for countries that are seeking to unlock financing from multiple sources and/or to demonstrate a commitment to a reform agenda. It would enable a closer policy dialogue between the Fund and countries, more regular monitoring of economic developments and policies, as well as Board endorsement of those policies. It would be available for all member countries. The key design features draw on Fund financing arrangements and the Policy Support Instrument (PSI), with some important differences. These include no qualification criteria, a review-based approach for monitoring of conditionality, and a more flexible review schedule. The PCI is part of a broader set of Fund policy proposals to improve coordination with RFAs, enhance liquidity provision for members, and ensure the cohesion of the Fund’s toolkit. The IMFC and the G20 called for further work to strengthen the GFSN and to improve cooperation between the Fund and regional financing arrangements (RFAs). In response, the Fund has produced a diagnostic of the GFSN and the Fund’s toolkit and identified important gaps. Introduction of the PCI, when considered together with the other proposals, will help to move towards a GFSN with improved coverage, more reliable support, and better coordination between the various layers.
The main topic of this thesis is Volatility of virtual currency Bitcoin. In theoretical part I will focus on significant historical milestones of Bitcoin. We are going to find out, if Bitcoin meets the criteria to be called good money, how is it with inflation and deflation in Bitcoin and what is and how mining works. Practical part is divided into three smaller analyses. The main part looks into fluctuation in the entire history of Bitcoin and attempts to seek for its causes. The second part examines the development of places, where it is possible to pay with Bitcoin. The last part is an inquiry into mining profitability under circumstances in February 2017.
This Bachelor thesis aims to bring the insight into the world of virtual currencies, and mainly to the world of Bitcoin which remains completely undiscovered by many people, although this could be very crucial for us in the near future. The theoretical part focuses on some general information. The effort is also to outline the principle of functioning of individual components the whole virtual currencies´ network consists of. Also, there are presented advantages and disadvantages associated with the use of these currencies. In the practical part, we mainly try to introduce the ways and options how the virtual currencies can be used in practice, offer other ways of utilization and then summarize their overall effect on the present and future global economic market.