Inflation Expectation and Cryptocurrency Investment

Lin Cong, Pulak Ghosh, Jiasun Li and Qihong Ruan

No 32945, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Using proprietary data from the predominant cryptocurrency exchange in India together with the country's Household Inflation Expectations Survey, we document a significantly positive association between inflation expectations and individual cryptocurrency purchases. Higher inflation expectations are also associated with more new investors in cryptocurrencies. We investigate investment heterogeneity in multiple dimensions, and find the effect to be concentrated in Bitcoin (BTC) and Tether (USDT) trading. The results are robust after controlling for speculative demand captured by surveys of investors' expected cryptocurrency returns, and admit causal interpretations as confirmed using multiple instrumental variables. Our findings provide direct evidence that households already adopt cryptocurrencies for inflation hedging, which in turn rationalizes their high adoption in developing countries without a globally dominant currency.

JEL-codes: G0 (search for similar items in EconPapers)
Date: 2024-09
New Economics Papers: this item is included in nep-ban, nep-eur, nep-fdg, nep-ipr, nep-mon and nep-pay
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