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Is Bitcoin really a currency?
David YermackNYU Stern School of Business
November 22, 2013
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What is Bitcoin?
A stateless , algorithmiccurrency
That exists only in cyberspace
Major demand is in U.S., China, and certainEuropean countries
Bitcoin / USD exchange rate: July 17, 2010 1 Bitcoin = $ 0.0495
November 21, 2013 1 Bitcoin = $740.5948
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Bitcoins appreciation vs. USD
Past week 71%
November 2013 (so far) 251%
2013 year to date 5,382%
Since inception 1,495,749%
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Daily trading volumeMt. Gox exchange
2010 2011 2011 2012 2013$0
$10
$1,000
$100,000
$10,000,000
$1,000,000,000
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History of Bitcoin
Bitcoin is proposed as a peer to peer electronic cash systembyan unknown software engineer, October 2008.
First Bitcoin issued electronically, January 2009.Current worldwide supply = c. 12 million.
Mt. Gox trading market opens, July 2010.
U.S. Treasury issues first regulatory guidance for virtual currencies,March 2013.
Federal regulators, including Bernanke, comment favorably uponBitcoin at the U.S. Senate hearing, November 2013.
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Bitcoins appeal
Bitcoins value cannot be debased by anygovernment.
The supply of Bitcoins can only grow slowly andis limited by a computer alogrithm to 21 million.
Bitcoin attacts young, affluent users ofeCommerce.
Seigniorage revenue goes to entrepreneurs whominenew Bitcoins by solving math problems.
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Does Bitcoin have the
characteristics of a currency?
A currency is . . .
1. A medium of exchange2. A unit of account
3. A store of value
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Bitcoin ATM
Installed in a Vancouvercoffee shop, October 2013
Victoria Hansen makesfirst-ever transaction
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Bitcoin investment vehicles
Winklevoss Twins claim to own 1% of worldwide supply,July 2013, and file for IPO of the Wilklevoss Bitcoin Trust
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Does Bitcoin have a stigma?Silk Road online drug market
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Bitcoins security risksDenial-of-service attacks depress Mt. Gox trading volume, April 2013
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Bitcoins beta
-10% -5% 0% 5% 10%
Market return
-50%
-40%
-30%
-20%
-10%
0%
10%
20%
30%
40%
50%
Bitcoin
return
Slope = 0.67
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Whats the best hedge for Bitcoin?Growth stocks like Vitamin Shoppe (NYSE VSI): = 0.607
Vitamin Shoppe 2011-12
(rescaled)
Bitcoin 2011-12
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Bitcoins volatility2013 to date
Euro / USD Bitcoin / USD
0.00
0.20
0.40
0.60
0.80
1.00
1.20
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What can you notdo with Bitcoin?
Store it in a real bank that has depositinsurance
Spend it anonymously
Sell it short
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Bitcoins greatest vulnerabilityMarket entry by competitors