Introduction :
A wide range of virtual currencies have emerged over the past decade, such as Bitcoin, Lite Coin, PeerCoin, Aurora coin, Dogecoin, and Ripple. The most important of these is Bitcoin.
In fact, this article allows to analyze the functionalities of Bitcoin as a new world currency, as well as its characteristics which can hinder its use as a medium of exchange, unit of account and store of value by comparing Bitcoin to standard currencies.
Since its introduction in 2009, Bitcoin has also been characterized by a significant increase in the number of transactions and market capitalization, which exceeded 5 billion US dollars in 2015.
This leads to extreme price volatility of Bitcoin against currencies. standards. In order to understand the reasons for such price fluctuation, the authors try to identify the factors of Bitcoin price formation.
Ciaian, Rajcaniova and Kancs (2016) analyze time series using daily data for the period 2009-2014. They suggest that Bitcoin's attractiveness indicators and supply and demand function are the most powerful drivers of Bitcoin prices.
On the other hand, macro-financial developments do not determine the price of Bitcoin in the long term. Thus, the authors find that Bitcoin price fluctuations are associated with speculative investment decisions.
According to what proceeds, Bitcoin will
not be able to compete with standard currencies. So the question we can ask : can Bitcoin become a global currency?
Problem :
“What are the factors that affect the price
of Bitcoin? »
Objective :
- Study the functionalities of Bitcoin (means of exchange, unit of account and store of value).
- Analyze the characteristics (advantage and disadvantage) of Bitcoin according to the three criteria: Medium of exchange, Unit of account and store of value.
Literature review :
- Bitcoin cannot be considered a new currency, however it is a speculative instrument (Velde 2013; Hanley 2014; Yermack 2014; Williams 2014).
- Plassaras (2013), Satran (2013), Luther and White (2014), Folkinshteyn et al. (2015) indicate that Bitcoin is a virtual currency.
- one of the main challenges of Bitcoin is the security side (cyber-attack) (Moore and Christin 2013; Böhme et al. 2015; Yermack 2014).
- Velde 2013 indicates that investing in Bitcoin requires an initial investment.
- Yermak (2014) finds that the use of Bitcoin as a medium of exchange to purchase goods and services is low (less than 20%).
- Bitcoin is an ineffective tool for managing the risk of price volatility, as it is not correlated to currencies (Euro, USD, etc.), gold. On this assumption, the macroeconomic change does not reflect the price of Bitcoin (Yermak, 2015).
- Kristoufek (2014) indicates that attractiveness is a more important factor than supply and demand in the price explanation of Bitcoin.
Model :
Results :
According to Ciaian, Rajcaniova and Kancs (2016), the demand factor has a positive and more significant impact than the supply function on the Bitcoin price.
However, they find that the number of transactions has a negative and insignificant effect on the price formation of Bitcoin. Thus, they find that the attractiveness factor has a stronger impact on the price of Bitcoin. This factor positively and significantly influences the price of Bitcoin.
This result is consistent with the work of Kristoufek (2014) who finds that attractiveness is a more important factor than supply and demand in explaining Bitcoin prices. Regarding the macroeconomic development factor (the DOW Jones index, the exchange rate and the price of oil), Ciaian, Rajcaniova and Kancs (2016) find that this factor does not affect the price of Bitcoin in the long term.
On the other hand, Wijk (2015) indicates completely the opposite. That is, this determinant has a positive and significant effect on the price of Bitcoin.
Conclusion :
Since its appearance, Bitcoin is associated with high volatility in the market. For this reason, it is not able to preserve its value as a unit of account for holders and investors.
Also, Bitcoin's security issue (cyber-attack) may reduce its ability as a store of value. Thus, the Bitcoin system depends essentially on the voluntary acceptance of participants. It is transferred only between speculative investors i.e. neither the government nor a financial institution controls its ecosystem.
In this case Bitcoin is negligible as a medium of
exchange. According to what proceeds, Bitcoin is not able to fulfill the three
functions of money
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