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On the transaction cost of Bitcoin

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  • Kim, Thomas

Abstract

Using a unique data on Bitcoin quotes in 16 different currencies, this paper examines the empirical transaction costs of Bitcoin in international transactions. We find that the transaction cost of Bitcoin is lower than that of retail foreign exchange markets. Bitcoin markets have, on average, 2% narrower bid-ask spreads than retail foreign exchange markets and, when the U.S. dollar is converted to other currencies via Bitcoin, the resulting exchange rates are, on average, 5% better than the retail foreign exchange rate. We find that Bitcoin's simpler infrastructure is a source of the cost advantage.

Suggested Citation

  • Kim, Thomas, 2017. "On the transaction cost of Bitcoin," Finance Research Letters, Elsevier, vol. 23(C), pages 300-305.
  • Handle: RePEc:eee:finlet:v:23:y:2017:i:c:p:300-305
    DOI: 10.1016/j.frl.2017.07.014
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    References listed on IDEAS

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    1. David Yermack, 2013. "Is Bitcoin a Real Currency? An economic appraisal," NBER Working Papers 19747, National Bureau of Economic Research, Inc.
    2. Cheah, Eng-Tuck & Fry, John, 2015. "Speculative bubbles in Bitcoin markets? An empirical investigation into the fundamental value of Bitcoin," Economics Letters, Elsevier, vol. 130(C), pages 32-36.
    3. Dyhrberg, Anne Haubo, 2016. "Bitcoin, gold and the dollar – A GARCH volatility analysis," Finance Research Letters, Elsevier, vol. 16(C), pages 85-92.
    4. Rainer Böhme & Nicolas Christin & Benjamin Edelman & Tyler Moore, 2015. "Bitcoin: Economics, Technology, and Governance," Journal of Economic Perspectives, American Economic Association, vol. 29(2), pages 213-238, Spring.
    5. Dwyer, Gerald P., 2015. "The economics of Bitcoin and similar private digital currencies," Journal of Financial Stability, Elsevier, vol. 17(C), pages 81-91.
    6. Hans R. Stoll, 2000. "Presidential Address: Friction," Journal of Finance, American Finance Association, vol. 55(4), pages 1479-1514, August.
    7. Brandvold, Morten & Molnár, Peter & Vagstad, Kristian & Andreas Valstad, Ole Christian, 2015. "Price discovery on Bitcoin exchanges," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 36(C), pages 18-35.
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    More about this item

    Keywords

    Bitcoin; Foreign exchange; Transaction cost; Digital currency; International fund transfer;

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System

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