Bitcoin and hyperdeflation: an optimizing monetary approach

Alexandre Sokic

MPRA Paper from University Library of Munich, Germany

Abstract: This paper is deeply motivated by the need to explore the impressive Bitcoin price development by addressing Bitcoin as money in its essential attribute as a medium of exchange. We adopt a monetary economics viewpoint and resort to a representative agent modelling strategy within a money-in-the-utility function (MIUF) framework. First, we show that the impressive Bitcoin price development observed since its inception can be interpreted as a hyperdeflation when we focus on Bitcoin role as a medium of exchange. Second, we show that specific monetary features of Bitcoin, its asymptotical fixed nominal stock and divisibility down to eight decimal places, account for a strong possibility of speculative hyperdeflationary paths. It is shown that those paths are fully consistent with the medium of exchange monetary role of Bitcoin and the representative agent optimizing behavior.

Keywords: Cryptocurrencies; Bitcoin; hyperdeflation; medium of exchange (search for similar items in EconPapers)
JEL-codes: E31 E41 E42 (search for similar items in EconPapers)
Date: 2018-11
New Economics Papers: this item is included in nep-mac, nep-mon, nep-pay and nep-upt
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:90603

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