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Equilibrium Bitcoin Pricing

Author

Listed:
  • Bruno Biais

    (HEC)

  • Albert Menkveld

    (VU University Amsterdam)

  • Catherine Casamatta

    (Toulouse School of Economics)

  • Christophe Bisière

    (Université Toulouse Capitole)

  • Matthieu Bouvard

    (McGill University, Desautels Faculty)

Abstract

We offer an overlapping generations equilibrium model of cryptocurrency pricing and confront it to new data on bitcoin transactional benefits and costs. The model emphasizes that the fundamental value of the cryptocurrency is the stream of net transactional benefits it will provide, which depend on its future prices. The link between future and present prices implies that returns can exhibit large volatility unrelated to fundamentals. We construct an index measuring the ease with which bitcoins can be used to purchase goods and services, and we also measure costs incurred by bitcoin owners. Consistent with the model, estimated transactional net benefits explain a statistically significant fraction of bitcoin returns.

Suggested Citation

  • Bruno Biais & Albert Menkveld & Catherine Casamatta & Christophe Bisière & Matthieu Bouvard, 2019. "Equilibrium Bitcoin Pricing," 2019 Meeting Papers 360, Society for Economic Dynamics.
    • Handle: RePEc:red:sed019:360
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    References listed on IDEAS

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