IDEAS home Printed from https://ideas.repec.org/p/pra/mprapa/90603.html
   My bibliography  Save this paper

Bitcoin and hyperdeflation : an optimizing monetary approach

Author

Listed:
  • Sokic, Alexandre

Abstract

This paper is deeply motivated by the need to explore the impressive Bitcoin price development by addressing Bitcoin as money in its essential attribute as a medium of exchange. We adopt a monetary economics viewpoint and resort to a representative agent modelling strategy within a money-in-the-utility function (MIUF) framework. First, we show that the impressive Bitcoin price development observed since its inception can be interpreted as a hyperdeflation when we focus on Bitcoin role as a medium of exchange. Second, we show that specific monetary features of Bitcoin, its asymptotical fixed nominal stock and divisibility down to eight decimal places, account for a strong possibility of speculative hyperdeflationary paths. It is shown that those paths are fully consistent with the medium of exchange monetary role of Bitcoin and the representative agent optimizing behavior.

Suggested Citation

  • Sokic, Alexandre, 2018. "Bitcoin and hyperdeflation : an optimizing monetary approach," MPRA Paper 90603, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:90603
    as

    Download full text from publisher

    File URL: https://mpra.ub.uni-muenchen.de/90603/1/MPRA_paper_90603.pdf
    File Function: original version
    Download Restriction: no

    References listed on IDEAS

    as
    1. Bennett T. McCallum, 2015. "The Bitcoin Revolution," Cato Journal, Cato Journal, Cato Institute, vol. 35(2), pages 347-356, Spring/Su.
    2. repec:eee:ecolet:v:164:y:2018:i:c:p:109-111 is not listed on IDEAS
    3. Pavel Ciaian & Miroslava Rajcaniova & d’Artis Kancs, 2016. "The economics of BitCoin price formation," Applied Economics, Taylor & Francis Journals, vol. 48(19), pages 1799-1815, April.
    4. Obstfeld, Maurice & Rogoff, Kenneth, 1983. "Speculative Hyperinflations in Maximizing Models: Can We Rule Them Out?," Journal of Political Economy, University of Chicago Press, vol. 91(4), pages 675-687, August.
    5. repec:eee:riibaf:v:41:y:2017:i:c:p:493-499 is not listed on IDEAS
    6. 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.
    7. repec:eee:ecolet:v:158:y:2017:i:c:p:3-6 is not listed on IDEAS
    8. Dwyer, Gerald P., 2015. "The economics of Bitcoin and similar private digital currencies," Journal of Financial Stability, Elsevier, vol. 17(C), pages 81-91.
    9. Brock, William A, 1974. "Money and Growth: The Case of Long Run Perfect Foresight," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 15(3), pages 750-777, October.
    10. C. Baek & M. Elbeck, 2015. "Bitcoins as an investment or speculative vehicle? A first look," Applied Economics Letters, Taylor & Francis Journals, vol. 22(1), pages 30-34, January.
    11. repec:eee:riibaf:v:43:y:2018:i:c:p:15-21 is not listed on IDEAS
    12. repec:eee:ecolet:v:168:y:2018:i:c:p:21-24 is not listed on IDEAS
    13. repec:eee:ecolet:v:163:y:2018:i:c:p:6-9 is not listed on IDEAS
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Cryptocurrencies; Bitcoin; hyperdeflation; medium of exchange;

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money
    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:90603. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Joachim Winter). General contact details of provider: http://edirc.repec.org/data/vfmunde.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.