Published in:Becker Friedman Institute for Research in Economics Working Paper ; No. 2018-21
Extent:
1 Online-Ressource (59 p)
Language:
English
DOI:
10.2139/ssrn.3155310
Identifier:
Origination:
Footnote:
Nach Informationen von SSRN wurde die ursprüngliche Fassung des Dokuments May 11, 2019 erstellt
Description:
In an endowment economy, we analyze coexistence and competition between traditional fiat money (Dollar) and cryptocurrency (Bitcoin). Agents can trade consumption goods in either currency or hold on to currency for speculative purposes. A central bank ensures a Dollar inflation target, while Bitcoin mining is decentralized via proof-of-work. We analyze Bitcoin price evolution and interaction between the Bitcoin price and monetary policy which targets the Dollar. We obtain a fundamental pricing equation, which in its simplest form implies that Bitcoin prices form a martingale. We derive conditions, under which Bitcoin speculation cannot happen, and the fundamental pricing equation must hold. We explicitly construct examples for equilibria