Some simple bitcoin economics

By Linda Schilling, Harald Uhlig. Journal of Monetary Economics, 2019

369 citations recorded by the source corpus.

We provide a model of an endowment economy with two competing, but intrinsically worthless currencies (Dollar, Bitcoin). Dollars are supplied by a central bank to achieve its inflation target, while the Bitcoin supply grows deterministically. Our fundamental pricing equation implies in its simplest form that Bitcoin prices form a martingale. “Mutual impatience” implies absence of speculation. Price volatility therefore does not invalidate the medium-of-exchange function. Bitcoin block rewards are not a tax on Bitcoin holders: they are financed with a Dollar tax. We discuss monetary policy implications, Bitcoin production, taxation, welfare and entry, and characterize the range of equilibria.

Subfields: Economics and Econometrics

View Paper: https://www.semanticscholar.org/paper/85d641db04b15d884499999be1de58f20febcc72

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Citations in the corpus

Risks and Returns of Cryptocurrency (2018, background): “Sockin and Xiong (2019) also show that investor attention can generate momentum in the cryptocurrency market, and in their model, the momentum effect disappears controlling for investor attention. We investigate whether there is a similar interaction between momentum and investor attention in the cr”
Equilibrium Bitcoin Pricing (2018, neutral): “In a model where agents have an infinite horizon, Schilling and Uhlig (2018) derive a version of the exchange rate indeterminacy result but also the existence of a speculative equilibrium where agents hold the cryptocurrency in anticipation of its appreciation.”
Cryptocurrency market contagion: Market uncertainty, market complexity, and dynamic portfolios (2019, background): “Besides, monetary policy considerations and implications in the light of the upsurge of cryptocurrency markets have also been investigated by authors such as Fernández-Villaverde and Sanches (2016); Bordo and Levin (2017), as well as, Schilling and Uhlig (2018).”
Volatility in the Cryptocurrency Market (2019, background): “Schilling and Uhlig (2018) obtain a fundamental pricing equation, which in its simplest form implies that Bitcoin prices form a martingale.”
Central Bank Digital Currency: When Price and Bank Stability Collide (2020, neutral): “, 2019), and the macroeconomic implications of cryptocurrencies via currency competition (Benigno, 2019; Benigno et al., 2019; Fernández-Villaverde and Sanches, 2019; Schilling and Uhlig, 2019).”
Cryptocurrencies: Stylized facts on a new investible instrument (2019, background): “…of recent papers build models to value cryptocurrencies such as Bitcoin based on its use in transactions (see, for example, Athey et al. (2016), Schilling and Uhlig (2018), Sockin and Xiong (2018)) or to value tokens issued in ICOs based on their use as a store of value (Cong et al. (2018)),…”