Coexistence of Bitcoin, fiat money, and risk-free bonds

Jose Angelo Divino and Matheus Silva de Paiva

Finance Research Letters, 2025, vol. 86, issue PF

Abstract: This study analyzes the coexistence of Bitcoin, fiat money, and risk-free assets in a competitive, unregulated financial economy. Bitcoin is modeled as a hybrid crypto asset that functions as a store of value and as a source of liquidity services. We consider a Bitcoin-in-the-utility (BIU) specification and introduce exogenous shocks to Bitcoin preferences, Bitcoin production, fiat money supply, and aggregate output. The results reveal that fiat money is neutral in the long run, while Bitcoin is not; shocks to Bitcoin production affect real allocations and relative prices, and higher transaction fees dampen demand and lower Bitcoin price. Policymakers should account for the macroeconomic implications of Bitcoin’s widespread adoption, as it can influence monetary policy design, financial stability, and the regulatory environment.

Keywords: Bitcoin; Fiat money; Risk-free bond; Money-in-the-utility; Neutrality (search for similar items in EconPapers)
JEL-codes: E21 E41 F42 (search for similar items in EconPapers)
Date: 2025
References: Add references at CitEc
Citations:

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S1544612325020793
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:86:y:2025:i:pf:s1544612325020793

DOI: 10.1016/j.frl.2025.108825

Access Statistics for this article

Finance Research Letters is currently edited by R. Gençay

More articles in Finance Research Letters from Elsevier
Bibliographic data for series maintained by Catherine Liu ().