Bitcoin and the legitimacy crisis of money

Weber, Beat

doi:10.1093/cje/beu067

Cited by 146 publications

(88 citation statements)

References 34 publications

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“…Further, evidence suggests that even rational speculation may still be accompanied by episodes of mass hysteria (Zeira, 1997). Given that 70% of existing Bitcoins are held in dormant accounts (Weber, 2014) Bitcoin seems to behave more like an asset than a currency. Bitcoin's main attraction seems to lie in being an object of speculation instead of functioning as money.…”

Section: Resultsmentioning

confidence: 99%

“…In contrast, irrational bubbles are formed when investors are driven by psychological factors unrelated to the asset's fundamental value. This can occur when investors resort to simple heuristics driven by market sentiments or via irrationally optimistic expectations, fashions and fads (Dwyer, 2014;Shiller, 2005;Weber, 2014). Under these circumstances, the relationship between fundamental value and price breaks down (Dale et al, 2005).…”

Section: Resultsmentioning

confidence: 99%

“…In order to serve as money Bitcoin should fulfil the roles of unit of account (Dwyer, 2014), means of payments and store of value. In this regard as the speculative aspects of Bitcoin dominates its other functions Bitcoin prices appear to be at the mercy of nothing more that market sentiments (Dwyer, 2014;Shiller, 2005;Weber, 2014). This has resulted in unpredictable volatility.…”

Section: Economic Considerationsmentioning

confidence: 99%

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Speculative bubbles in Bitcoin markets? An empirical investigation into the fundamental value of Bitcoin

2015

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This is a PDF file of an unedited manuscript that has been accepted for publication. As a service to our customers we are providing this early version of the manuscript. The manuscript will undergo copyediting, typesetting, and review of the resulting proof before it is published in its final form. Please note that during the production process errors may be discovered which could affect the content, and all legal disclaimers that apply to the journal pertain. The cu rrent m arket valu e of the bitcoin m arket is cu rrently estim ated to be arou nd $3.3 billion  Bitcoins p rices contain a consid erable sp ecu lative com p onent  Bitcoin m arkets are su scep tible to bu bbles.  The fu nd am ental valu e of bitcoins is zero. Speculative bubbles in Bitcoin markets? An empirical investigation into the fundamental value of BitcoinEng-Tuck Cheah * John Fry † February 2015Abstract Amid its rapidly increasing usage and immense public interest the subject of Bitcoin has raised profound economic and societal issues. In this paper we undertake economic and econometric modelling of Bitcoin prices. As with many asset classes we show that Bitcoin exhibits speculative bubbles. Further, we find empirical evidence that the fundamental price of Bitcoin is zero.

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Section: Resultsmentioning

confidence: 99%

Section: Resultsmentioning

confidence: 99%

Section: Economic Considerationsmentioning

confidence: 99%

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Speculative bubbles in Bitcoin markets? An empirical investigation into the fundamental value of Bitcoin

2015

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“…In the euro area, "net trust" in the European Central Bank fell from +29 to -23 in the six years following 2008, meaning that a majority distrusted the ECB in 2014 (Roth et al 2016). In light of these developments, some authors have observed a "legitimacy crisis of money" (Weber 2016), while others have diagnosed a "legitimacy problem" for the Fed (Goodhart 2015;Jacobs/King 2016: 31) and failures of output and throughput legitimacy for the ECB (Scharpf 2012: 21;Schmidt 2016). There is little understanding, however, of how these two developments relate to each other.…”

Section: Introductionmentioning

confidence: 99%

Speaking to the people? Money, trust, and central bank legitimacy in the age of quantitative easing

Braun

2016

Review of International Political Economy

119

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. MPIfG Discussion Papers are refereed scholarly papers of the kind that are publishable in a peer-reviewed disciplinary journal. Their objective is to contribute to the cumulative improvement of theoretical knowledge. The papers can be ordered from the institute for a small fee (hard copies) or downloaded free of charge (PDF). Terms of use: Documents in ZusammenfassungDie durch die Finanzkrise und die unkonventionellen Maßnahmen der Zentralbanken bewirkte Politisierung des Geldes erlaubt einen seltenen Einblick in den Zusammenhang zwischen Geldvertrauen und Zentralbanklegitimität. Die Kommunikation von Zentralbanken mit der breiten Öffentlichkeit -im Gegensatz zur gut erforschten Kommunikation mit Finanzmärkten bisher weitgehend vernachlässigt -sieht sich mit einem Dilemma konfrontiert. Einerseits hängt die Legitimität der Zentralbank davon ab, ob ihr Handeln den Maximen entspricht, die sich aus der in der Öffentlichkeit vorherrschenden Theorie des Geldes ableiten. Andererseits weicht diese Theorie in wichtigen Punkten von der tatsächlichen Funktionsweise des Geldsystems ab. Wie Zentralbanken mit diesem Dilemma umgehen, hängt von der allgemeinen geldpolitischen Situation ab. Anhand der Beispiele der Deutschen Bundesbank und der Europäischen Zentralbank wird argumentiert, dass Zentralbanker unter inflationären Bedingungen die Öffentlich-keit gerne in dem Glauben lassen, die Geldmenge sei vollständig von der Zentralbank kontrolliert. Die außergewöhnliche Initiative der Bank of England, die Öffentlichkeit von der Irrtümlichkeit dieser Vorstellung zu überzeugen, zeigt hingegen, dass deflationärer Druck und rapide geldpolitische Expansion das diskursive Verhältnis zwischen Geldvertrauen und Zentralbanklegitimität grundlegend verändert haben.

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“…In another study, Böhme et al (2015) Cheung et al (2015) and Cheah and Fry (2015) express their concern regarding its "bubble-like" behaviour; see also Weber (2016 In an excellent primer on the mechanics of Bitcoin, Velde (2013) regards Bitcoin as an elegant implementation of virtual currency -controlling its creation and avoiding its duplication simultaneously -but questions whether it can truly rival or replace existing currencies. The paper argues that, should Bitcoin become widely accepted, it is unlikely that it will remain free of intervention by public authorities, if only because the governance of the Bitcoin computational code and "mining" protocol is opaque and vulnerable.…”

Section: Literaturementioning

confidence: 99%

On the Value of Virtual Currencies

Bolt

Oordt

2016

SSRN Journal

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. ii Terms of use: Documents in EconStor may AbstractThis paper develops an economic framework to analyze the exchange rate of virtual currency. Three components are important: first, the current use of virtual currency to make payments; second, the decision of forward-looking investors to buy virtual currency (thereby effectively regulating its supply); and third, the elements that jointly drive future consumer adoption and merchant acceptance of virtual currency. The model predicts that, as virtual currency becomes more established, the exchange rate will become less sensitive to the impact of shocks to speculators' beliefs. This undermines the notion that excessive exchange rate volatility will prohibit widespread use of virtual currency. Bank topics: Asset pricing; E-money; Exchange rates JEL codes: E42, E51, F31, G1 RésuméNous construisons un modèle d'analyse pour cerner les facteurs qui influent sur le taux de change des monnaies virtuelles. Trois éléments importent : tout d'abord, l'utilisation actuelle d'une monnaie virtuelle comme moyen de paiement; ensuite, la décision d'investisseurs prospectifs d'acheter de la monnaie virtuelle (et de contrôler ainsi l'offre de ce type de monnaie); enfin, les facteurs qui détermineront ensemble l'adoption d'une monnaie virtuelle par les consommateurs et son acceptation par les commerçants. Selon les prévisions du modèle, lorsqu'une monnaie virtuelle devient plus établie, son taux de change devient moins sensible aux répercussions des changements non anticipés de croyance des spéculateurs. Ce résultat va à l'encontre de l'idée voulant que la très forte volatilité de leur taux de change empêchera la large diffusion des monnaies virtuelles. Sujets : Évaluation des actifs; Monnaie électronique; Taux de change Codes JEL : E42, E51, F31, G1 Non-Technical SummaryThis paper develops a theoretical framework to analyze the economic factors affecting the exchange rate for virtual currency. Virtual currencies, such as Bitcoin, represent both the emergence of a new form of currency and a new payment technology to purchase goods and services. These currencies may move outside the scope of current financial institutions, as they allow distant payments to be made directly between consumers and merchants without the use of any financial intermediaries. Moreover, their supply is not necessarily controlled by central banks, and speculative motives are widely believed to be an important factor for the value of virtual currencies.Sp...

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Bitcoin and the legitimacy crisis of money

Cited by 146 publications

References 34 publications

Speculative bubbles in Bitcoin markets? An empirical investigation into the fundamental value of Bitcoin

Speculative bubbles in Bitcoin markets? An empirical investigation into the fundamental value of Bitcoin

Speaking to the people? Money, trust, and central bank legitimacy in the age of quantitative easing

On the Value of Virtual Currencies

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