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Cryptocurrency competition: An empirical test of Hayek's vision of private monies

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  • Mayer, Fabian
  • Bofinger, Peter

Abstract

We investigate monopolistic tendencies and the intensity of currency competition on the crypto market in the light of Hayek's "Denationalization of money". Interestingly, Hayek never considered differentiation and specialization by innovative private currencies could lead lasting currency competition instead of network effects. We argue that competition between private currencies could run on different functions of money, especially the function as a store of value and that as a means of exchange, which partly explains the differences in the set-up of private currencies that Hayek demanded and that of cryptocurrencies. Drawing on a large sample of 101 cryptocurrencies and a time frame from 2016 to 2022, we empirically examine the evolution and degree of competition on the crypto market, also taking changes in general crypto market structure into account. We find that competition is strong for unpegged cryptocurrencies that mostly compete as a speculative store of value. Competition is also strong for stablecoins when competing as a stable store of value. Competition is much less pronounced for the function as a means of exchange and network effects and monopolistic tendencies are more likely to be present on this sub-market.

Suggested Citation

  • Mayer, Fabian & Bofinger, Peter, 2023. "Cryptocurrency competition: An empirical test of Hayek's vision of private monies," W.E.P. - Würzburg Economic Papers 103, University of Würzburg, Department of Economics.
    • Handle: RePEc:zbw:wuewep:103
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    References listed on IDEAS

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    JEL classification:

    • B25 - Schools of Economic Thought and Methodology - - History of Economic Thought since 1925 - - - Historical; Institutional; Evolutionary; Austrian; Stockholm School
    • D40 - Microeconomics - - Market Structure, Pricing, and Design - - - General
    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
    • E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General
    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms

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