Bitcoin Mania

8/12/2019 Bitcoin Mania

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Is Bitcoin really a currency?

David YermackNYU Stern School of Business

November 22, 2013


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What is Bitcoin?

A stateless , algorithmiccurrency

That exists only in cyberspace

Major demand is in U.S., China, and certainEuropean countries

Bitcoin / USD exchange rate: July 17, 2010 1 Bitcoin = $ 0.0495

November 21, 2013 1 Bitcoin = $740.5948


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Bitcoins appreciation vs. USD

Past week 71%

November 2013 (so far) 251%

2013 year to date 5,382%

Since inception 1,495,749%


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Daily trading volumeMt. Gox exchange

2010 2011 2011 2012 2013$0

$10

$1,000

$100,000

$10,000,000

$1,000,000,000


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History of Bitcoin

Bitcoin is proposed as a peer to peer electronic cash systembyan unknown software engineer, October 2008.

First Bitcoin issued electronically, January 2009.Current worldwide supply = c. 12 million.

Mt. Gox trading market opens, July 2010.

U.S. Treasury issues first regulatory guidance for virtual currencies,March 2013.

Federal regulators, including Bernanke, comment favorably uponBitcoin at the U.S. Senate hearing, November 2013.


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Bitcoins appeal

Bitcoins value cannot be debased by anygovernment.

The supply of Bitcoins can only grow slowly andis limited by a computer alogrithm to 21 million.

Bitcoin attacts young, affluent users ofeCommerce.

Seigniorage revenue goes to entrepreneurs whominenew Bitcoins by solving math problems.


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Does Bitcoin have the

characteristics of a currency?

A currency is . . .

1. A medium of exchange2. A unit of account

3. A store of value


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Bitcoin ATM

Installed in a Vancouvercoffee shop, October 2013

Victoria Hansen makesfirst-ever transaction


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Bitcoin investment vehicles

Winklevoss Twins claim to own 1% of worldwide supply,July 2013, and file for IPO of the Wilklevoss Bitcoin Trust


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Does Bitcoin have a stigma?Silk Road online drug market


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Bitcoins security risksDenial-of-service attacks depress Mt. Gox trading volume, April 2013


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Bitcoins beta

-10% -5% 0% 5% 10%

Market return

-50%

-40%

-30%

-20%

-10%

0%

10%

20%

30%

40%

50%

Bitcoin

return

Slope = 0.67


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Whats the best hedge for Bitcoin?Growth stocks like Vitamin Shoppe (NYSE VSI): = 0.607

Vitamin Shoppe 2011-12

(rescaled)

Bitcoin 2011-12


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Bitcoins volatility2013 to date

Euro / USD Bitcoin / USD

0.00

0.20

0.40

0.60

0.80

1.00

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What can you notdo with Bitcoin?

Store it in a real bank that has depositinsurance

Spend it anonymously

Sell it short


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Bitcoins greatest vulnerabilityMarket entry by competitors

Bitcoin Mania

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