Search Results
Working Paper
Uncovering Retail Trading in Bitcoin: The Impact of COVID-19 Stimulus Checks
In April 2020, the US government sent economic impact payments (EIPs) directly to households, as part of its measures to address the COVID-19 pandemic. We characterize these stimulus checks as a wealth shock for households and examine their effect on retail trading in Bitcoin. We find a significant increase in Bitcoin buy trades for the modal EIP amount of $1,200. The rise in Bitcoin trading is highest among individuals without families and at exchanges catering to nonprofessional investors. We estimate that the EIP program has a significant but modest effect on the US dollar–Bitcoin ...
Report
The Bitcoin–Macro Disconnect
This paper investigates the link between Bitcoin and macroeconomic fundamentals by estimating the impact of macroeconomic news on Bitcoin using an event study with intraday data. The key result is that, unlike other U.S. asset classes, Bitcoin is orthogonal to monetary and macroeconomic news. This disconnect is puzzling as unexpected changes in discount rates should, in principle, affect the price of Bitcoin even when interpreting Bitcoin as a purely speculative asset.
Discussion Paper
What Makes Cryptocurrencies Different?
Permissionless blockchains, which support the most popular cryptocurrency networks like Bitcoin and Ethereum, have shown that it is possible to transfer value without relying on centralized trusted third parties, something that is new and remarkable (although perhaps most clearly useful for less developed financial markets). What makes permissionless blockchains able to transfer value without relying on a small number of trusted third parties is the combination of several components that all need to work together. The components themselves are not particularly new, but the combination of ...
Journal Article
Bitcoin vs. the Buck: Is Currency Competition a Good Thing?
Ever since the U.S. established a single currency in the 19th century, the idea of private money has evoked panics and bank failures. In the cryptocurrency era, can the dollar stay sound?
Discussion Paper
Token- or Account-Based? A Digital Currency Can Be Both
Digital currencies, including potential central bank digital currencies (CBDC), have generated a lot of interest over the past decade, since the emergence of Bitcoin. The interest has only grown in recent months because of a desire for contactless payment methods, stemming from the coronavirus pandemic. In this post, we discuss a common distinction made between “token-based” and “account-based” digital currencies. We show that this distinction is problematic because Bitcoin and many other digital currencies satisfy both definitions.
Working Paper
Bitcoin: Technical Background and Data Analysis
This paper provides the necessary technical background to understand basic Bitcoin operations and documents a set of empirical regularities related to Bitcoin usage. We present the micro-structure of the Bitcoin transaction process and highlight the use of cryptography for the purposes of transaction security and distributed maintenance of a ledger. Using publicly available transaction-level data, we examine patterns of general usage together with usage by Satoshi Dice, the largest online gambling service using Bitcoin as the method of payment. Our analysis suggests that less than 50 percent ...
Discussion Paper
Bitcoin Is Not a New Type of Money
Bitcoin, and more generally, cryptocurrencies, are often described as a new type of money. In this post, we argue that this is a misconception. Bitcoin may be money, but it is not a new type of money. To see what is truly new about Bitcoin, it is useful to make a distinction between “money,” the asset that is being exchanged, and the “exchange mechanism,” that is, the method or process through which the asset is transferred. Doing so reveals that monies with properties similar to Bitcoin have existed for centuries. However, the ability to make electronic exchanges without a trusted ...
Discussion Paper
Deciphering Americans’ Views on Cryptocurrencies
Having witnessed the dramatic rise and fall in the value of cryptocurrencies over the past year, we wanted to learn more about what motivates people to participate in this market. To find out, we included a special set of questions in the May 2018 Survey of Consumer Expectations, a project of the New York Fed’s Center for Microeconomic Data. This blog post summarizes the results of that survey, shedding light on U.S. consumers’ depth of participation in cryptocurrencies and their motives for entering this new market.
Discussion Paper
Do Exchange‑Traded Products Improve Bitcoin Trading?
Spot bitcoin exchange-traded products (ETPs) began trading in the U.S. on January 11, 2024. For investors, these ETPs purport improved liquidity and price efficiency, and more convenient access to bitcoin trading compared to other means of trading bitcoin in spot markets. Proponents also cite bitcoin holdings as a portfolio diversification opportunity due to historically low correlation with traditional financial securities. Others argue that bitcoin remains a speculative asset and that ETPs increase its interconnections with the traditional financial system. In this post, we examine the ...
Discussion Paper
Is There a Bitcoin–Macro Disconnect?
Cryptocurrencies’ market capitalization has grown rapidly in recent years. This blog post analyzes the role of macro factors as possible drivers of cryptocurrency prices. We take a high-frequency perspective, and we focus on Bitcoin since its market capitalization dwarfs that of all other cryptocurrencies combined. The key finding is that, unlike other asset classes, Bitcoin has not responded significantly to U.S. macro and monetary policy news. This disconnect is puzzling, as unexpected changes in discount rates should, in principle, affect the price of Bitcoin.