What Sort of Asset? Bitcoin Analysed

Abstract

Early analysis of Bitcoin concluded that it did not meet the economic conditions to be classified as a currency. Since this analysis interest in bitcoin has increased substantially. We investigate whether the introduction of futures trading in bitcoin is able to resolve the issues that stopped bitcoin from being considered a currency. Our analysis shows that spot volatility has increased following the announcement of the futures contracts, the futures contracts are not an effective hedging instrument and that price discovery is driven by uninformed investors in the spot market. The conclusion that bitcoin is a speculative asset rather than a currency is not altered by the introduction of futures trading.