A Framework for the Monetary Analysis of Cryptocurrencies

Absztrakt (kivonat)

This thesis proposes a framework for the economic analysis of cryptocurrencies as a form of money, and applies it on the case of Bitcoin. The framework has two distinct pillars: 1) a quantitative analysis of time series behavior in comparison to a benchmark portfolio of fiat currencies, and 2) a qualitative assessment of money functions and currency design. As an application of this framework, the full history of Bitcoin was analyzed. All known USD-based Bitcoin exchanges were mined of their data to create the longest possible times series for the trade-weighted BTC/USD price. Using this data, daily log returns were calculated for a similarity/dissimilarity analysis with 23 foreign exchange pairs, and distribution fitting was conducted for identifying the risk profile of Bitcoin. It was found that Bitcoin is highly dissimilar to the forex market, and it has a non-normal distribution. A statistical model was also built for explaining Bitcoin’s volatility with its inherent properties, such as the hash rate, the money supply, the transaction volume or the number of unique addresses. The model demonstrated that one-third of Bitcoin’s volatility can be explained. These results, along with a qualitative assessment of design, showed that as Bitcoin ages, it may become less volatile, and thus better able to fulfill the core functions of money. This suggests that cryptocurrencies, such as Bitcoin, need more time to mature.