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Bitcoin: Currency or Asset?

Dirk G. Baur, Kühne Logistics University1
KiHoon Hong, Hongik University College of Business
Adrian D. Lee, UTS Business School

First version: February 2015
This version: November 2015


Bitcoin is defined as digital money within a decentralized peer-to-peer payment network. It is a
hybrid between fiat currency and commodity currency without intrinsic value and independent of
any government or monetary authority. This paper analyses the question of whether Bitcoin is
currency or an asset and more specifically, what is its current usage and what usage will prevail in
the future given its characteristics. We analyse the statistical properties of Bitcoin and find that it is
essentially uncorrelated with traditional asset classes such as stocks, bonds and commodities both in
normal times and in periods of financial turmoil. The analysis of transaction data of Bitcoin accounts
shows that Bitcoins are mainly used as a speculative investment and not as an alternative currency
and medium of exchange. Bitcoin is still small relative to the size of other asset classes and thus
does not pose an immediate risk for monetary, financial or economic stability.

Keywords: Bitcoin; digital currency; alternative currency; medium of exchange; asset class

Corresponding author. Address: KLU, Grosser Grasbrook 17, 20457 Hamburg, Germany,
email: dirkgbaur@gmail.com
The authors acknowledge generous research funding from the SWIFT Institute.


1. Introduction

According to Nakamoto (2008), Bitcoin is a peer-to-peer electronic cash system which allows
online payments to be sent directly from one party to another without going through a financial
institution. This definition suggests that Bitcoin is mainly used as an alternative currency. However,
Bitcoin can also be used as an asset and thus would serve a different purpose. Whilst currency be
characterized as a medium of exchange, a unit of account and a store of value, an asset does generally
not possess the first two features and can be clearly distinguished from a currency. Hence, this paper
analyses the question of whether Bitcoin is currency or an asset and more specifically, what is its
current usage and what usage will most likely prevail in the future given its characteristics?
If Bitcoin is mainly used as a currency to pay for goods and services, it will compete with fiat
currency such as the US dollar and thus influence its value and ultimately monetary policy. If, on the
other hand, it will mainly be used as an investment, it will compete with other assets such as
government bonds, stocks and commodities among others and potentially influence the financial
system and financial stability. Whether it is currency or an asset, the potential to influence the
economy as a whole depends on the success of Bitcoin or similar alternatives compared to existing
currencies and financial assets.
To answer the question of whether Bitcoin is currency or an asset, we analyse the value of Bitcoins’
financial characteristics relative to a large number of different assets and the usage of Bitcoins; i.e.
are Bitcoins mainly used as an investment or as an alternative currency to pay for goods and services?
We find that Bitcoins are mainly used as a speculative investment despite or due to its high volatility
and large returns. Interestingly, Bitcoin returns are essentially uncorrelated with all major asset
classes which offers large diversification benefits. This low correlation, if stable and constant over
time, would also imply low risk from a macro perspective. For example, if Bitcoins showed bubble-
like characteristics, a significant fall in the value of Bitcoins could be an isolated event if the
correlation remained at zero and thus no other assets would be affected. If, on the other hand, Bitcoin
investments were debt-financed, a significant fall in the value could lead to margin calls and then also
affect other assets (e.g. see Brunnermeier and Pedersen, 2009 and Kyle and Xiong, 2001).

2. Background

Bitcoin is designed as a decentralized peer-to-peer payment system and thus a medium of
exchange. It can be defined as synthetic commodity money (Selgin, 2015) sharing features with both
commodity monies such as gold and fiat monies such as the US dollar. Whilst commodity money is
naturally scarce and has a use other than being a medium of exchange, fiat money is not naturally


both types of money can be used as a store of value. in contrast to its supply. Since the demand for Bitcoins. The law predicts changes in the relative values of two alternative monies labeled “good money” and “bad money”. In addition. This has strong implications for the value of Bitcoins and the potential deflationary effects it may entail.g.e. it may influence the value of fiat currency and ultimately monetary policy. i.com/). When evaluating the potential future use and acceptance of Bitcoin it is important to analyse the growth path of Bitcoin supply. 3 . We base our analysis on excess returns over the 3- month Treasury bill rate. According to the website. If. The absence of counterparty risk for gold is. not matched by Bitcoin’s peer-to-peer payment network. 3. which is also obtained from Bloomberg. Gresham’s law may become relevant. on the other hand. Bitcoin is a hybrid of commodity money and fiat money. The supply of Bitcoins is perfectly predictable and will continue to increase in decreasing steps until 2040 and remain at the 2040 level ad infinitum. However. deterministic rule fulfilled by competitive mining similar but not equal to commodity money (e. the deflationary effects that are built into the Bitcoin system make it more likely that Bitcoins will be used as an investment than as a medium of exchange. Changes in the relative values can lead to a crowding out effect of the “good money” making the “bad money” a medium of exchange and the “good money” a store of value.scarce but issued by a central bank and its main purpose is that of being a medium of exchange. Bitcoin is scarce by design. gold) but its value is better characterised by fiat money as Bitcoins have no “intrinsic” value.2 Given the potential influence of Bitcoins on fiat money and thus on monetary policy. If Bitcoins are not viewed as an alternative currency and not used as a medium of exchange. Bitcoins are seen as a stable money benchmark and thus a medium of exchange. Another important similarity of Bitcoin with gold is its non-centrality. however. its scarcity is determined by an automatic. central banks and regulatory authorities carefully monitor the future developments of Bitcoin and other “virtual currencies”. it is difficult to forecast the future value and usage of Bitcoins. All other return data comes from Bloomberg. We use the WinkDex data as the daily exchange rate of Bitcoin to US dollar (USD) from the WinkDex website (https://winkdex. it will not compete with fiat currency and thus not affect the effectiveness of monetary policy. Table 1 lists the assets that we 2 If Bitcoin prices were stable and thus quasi-fixed to the US dollar. the WinkDex is calculated by blending the trading prices in US dollars for the top three (by volume) qualified Bitcoin Exchanges. Data Our analysis of the return properties of Bitcoin uses daily data between July 2010 and June 2015. is unpredictable both in the near future and beyond 2040.

Bitcoin has been very volatile with several large falls over the sample period. The dataset contains the complete set of individual Bitcoin transactions that have the timestamp. precious metals. The data also consolidates individual wallets to unique users based on when multiple wallets are used to send Bitcoin. commodities. energy. Bitcoin 3 http://www. One example is when Bitcoin hit its peak price of $1150. Figure 1 shows the Bitcoin price in USD over the sample period. 5 1 Satoshi is 100 millionth of a Bitcoin. the level of historical return and volatility is not comparable to any other asset. As can be seen.53 on 18/12/13.htm 4 Such consolidation will still overestimate the number of unique users as unrelated wallets may be held by a user. Moreover. The Bitcoin returns also show very high negative skewness and very high kurtosis. (2013) identify.75 on 30/11/13 and fell to $547. [INSERT FIGURE 1 HERE] Table 2 reports descriptive statistics for the returns of Bitcoin and other asset classes.vo. (2014) as available on their website. An even larger magnitude fall in Bitcoin happened in April 2013. As a first step. and sending and receiving address IDs (i. the Bitcoin wallet addresses). we use Bitcoin transaction data from Kondor et al.analyse against Bitcoin. gold and silver returns. Large negative skewness is comparable to the skewness of high yield corporate bonds. The sample period is from the first Bitcoin transaction on 9th January 2009 to 28th December 2013. Such large negative skewness indicates the asymmetric Bitcoin return distribution and that the tails on the left side of the distribution is longer or fatter than the right side. amount transacted.28 at the beginning of the sample period and ending at $388.elte.hu/Bitcoin/default. 4. As such. We find that Bitcoin returns exhibit the highest return and standard deviation (or volatility) compared to the returns of the other 16 assets. [INSERT TABLE 1 HERE] For the analysis of Bitcoin users.55. 4 . the Bitcoin has experienced a dramatic increase from $5. Bitcoin Returns compared with other Assets In this section we compare the return properties of Bitcoin to other assets.4 We also remove users that only make two trades within an hour with an ending balance of less than 100 Satoshi5 as these appear to be ‘change addresses’ as Meiklejohn et al.3 The data are actual transactions originating from the public Bitcoin ledger. bonds and currencies. These assets include US equities.e.

Bitcoin displays the largest positive correlation (0. [INSERT TABLE 2 HERE] We report correlations between Bitcoin returns and other asset returns in Table 3. The results suggest that there are significant profit opportunities for momentum traders. the first-lag return autocorrelation is 0. Indeed.05) with the S&P500 and S&P600 stock indices and high-yield corporate bonds and the lowest negative correlations at (-0.25 and on two occasions even reaching values above 0. Consistent with Yermack (2013). it would not be surprising if Bitcoin returns showed some predictability and thus potential inefficiencies.8.058 and statistically different from zero at the 1% level of significance. the Box-Pierce and Ljung-Box tests show highly significant test statistics at the 1% level indicating the presence of autocorrelation. Arguments for Bitcoin as a safe haven are that Bitcoin does not yet play an important role in the financial system and thus may be uncorrelated with extreme negative stock returns and financial system turmoil. No other asset exhibits such weak correlations with other assets across the board. we conclude that Bitcoin is different from all traditional assets we investigated. it is evident that Bitcoin returns are not correlated with any of the analysed asset returns. [INSERT TABLE 3 HERE] Since Bitcoin is relatively young and volatile. it is also possible that it is considered to be a safe haven against financial turmoil or against the collapse of the financial system despite its excess volatility compared to other currencies and gold. Since Bitcoin is segmented from the current fiat money system.03) with the US Treasury Bond index (tbr). Figure 2 presents the 120-day rolling first-lag autocorrelation coefficient and the associated 10% critical values (grey vertical lines) and shows that Bitcoin return predictability is time-varying with values regularly above 0. [INSERT FIGURE 2 HERE] Bitcoin is often compared to gold since it shares some crucial characteristics such as the limited supply and supply growth through mining and the non-centrality and independence of central banks. Bitcoin could function as an alternative to a rapidly depreciating currency and serve as a temporary store of value. Overall. Moreover. This indicates a greater number of tail events in Bitcoin returns.returns exhibit extremely high kurtosis compared with other assets. Moreover. 5 .

Makes only one transaction of less than USD$100. number of transactions and transaction size). The estimation results are presented in Table 4 and show that Bitcoin is both uncorrelated with the S&P500 on average and in periods of extreme losses.2 reports the total Bitcoin balance and Section 5.000. or has made only one receiving Bitcoin transaction of greater than USD$100. Hybrid user . However. Tester . the scatter plot of Bitcoin returns and S&P500 returns in Figure 3 indicates that there is no inverse relationship between negative S&P500 returns and positive Bitcoin returns. Receive only investor .000 transactions. Bitcoin does not systematically yield positive returns which renders Bitcoin not a safe haven asset.1 Categorising User Types We define users into four categories by their lifetime activity up to the balance date: Active investor .All other users not categorised.Makes more than one transaction. 5.1 shows how we classify user types.More than two transactions and only receives Bitcoin in greater than USD$100 transaction with no sending of Bitcoin.3 reports wallet characteristics of the user types (mean balance. Section 5. This empirical finding of Bitcoin not being a strong safe haven is also consistent with the excess volatility of Bitcoin and indications that assets with no history as a safe haven asset are unlikely to be considered “safe” in an economic or financial crisis. Section 5. More specifically. for negative or extreme negative S&P500 returns. This conclusion derived from a visual inspection is confirmed by a regression analysis of Bitcoin returns on S&P500 returns and interaction terms with dummies for extreme values of S&P500 returns. has made both sending and receiving transactions and sending transaction sizes are less than USD$2. We categorise user types to determine whether Bitcoin is predominantly used for investing or as a currency. Currency user .More than two transactions and only sends Bitcoin in greater than USD$2. Bitcoin User Analysis In this section we classify Bitcoin users into user types and investigate the wallet characteristics of these user types. [INSERT FIGURE 3 HERE] [INSERT TABLE 4 HERE] 5. 6 .

There has also been a dramatic increase in users over time from 720. However currency 7 . receive only investor and hybrid user group total holdings have increased over time while Bitcoin currency user and tester have fallen over time.705 users as at the end of 2011 to 6. We also group users that are just testing the system and so are neither investors nor currency users (tester) and those that appear to do both currency and investing (hybrid user). [INSERT TABLE 5 HERE] We find that the active investor.16% at the end of 2013.7 million users as at the end of 2013. 5. Total Bitcoin value in USD has risen dramatically due to the rapid rise in price of Bitcoin and from the mining of Bitcoin which increases the total number of Bitcoins available.2 Total Bitcoin Balances of User Types Table 5 reports the total Bitcoin balances in Bitcoin and USD across user types for our three snapshot dates. Our categorisation system attempts to distinguish between those users that are investing in Bitcoin by building up Bitcoin balances over time and either not sending Bitcoin (receive only investor) or only making large send transactions (active investor). Prior to 16th July 2010 we set all transaction as being worth USD$0 as there is no USD exchange price during this period. The largest group of users by share of Bitcoin and user numbers are hybrid from 41% in 2011 to 47% in 2013 which is expected as hybrid users would consist of merchants and consumers who hold Bitcoin to purchase goods and services. The fact that such users remain dominant strongly suggests that Bitcoin is mainly a vehicle for investment rather than for trade and has continued to be as such during our sample period. We take three snapshots of user type balances on 31/12/11.22% of all Bitcoins as at 2013 end despite being the smallest group by user numbers. In contrast. 31/12/12 and 28/12/13 (the end of our sample period). The total value in USD as at the end of 2013 is $8.8 billion dollars which is small relative to other assets such as shares where trillions of dollars are invested. users that send small amounts of Bitcoins are exchanging Bitcoin for goods and services (currency user). The second largest user type is receive only investors who hold 30.90% at 2011 end to 16. Such a fall is expected as Bitcoin gains recognition over time. Bitcoin transaction sizes in USD use the Bitcoin to USD price on the day of the transaction as per Mt Gox or WinkDex’s trade-weighted price. Tester is a large group although its share of balances has fallen from 24. We use these three snapshots to see whether there are trends in users purely investing or using Bitcoin as a medium of exchange.

Table 6 reports mean and standard deviations of individual user wallet characteristics for various user types and as at the end of our snapshot periods.27 trades as at 2013. In Table 6 Panel B we find that currency users trade the most frequently having a mean of 43.user holdings declined from 7. we calculate the mean wallet characteristic across all transactions until the snapshot date. [INSERT TABLE 6 HERE] In Table 6 Panel A we find receive only investors have the largest mean and standard deviation of balances amongst all groups over all time snapshots. at the individual user level.54% in 2013 which suggests that Bitcoin’s usage purely for purchasing goods and services has diminished.120 and standard deviation of $156. This group thus appears to make large receiving and sending transactions to enter and completely exit out of Bitcoin. user mean number of Bitcoin trades (Panel B) and user mean transaction size (Panel C). even compared with buy only investors. The wallet characteristics are user mean Bitcoin balances in USD (Panel A).10. In Table 6 Panel C we find that active investors make large transactions with a mean transaction size of $18. tend to hold large balances compared with other groups. We conclude that there are very few users that use Bitcoin purely as a medium of exchange and a dominant group of users that use Bitcoin purely for investment. First. Active investors and currency users keep small balances. Hybrid users have the largest standard deviation in number of Bitcoin transactions of up to 4.3 User Type Bitcoin Wallet Characteristics In this section we investigate the wallet characteristics of our user group classifications. Overall we find that receive only investors while a small group in number. Whether this is related to the volatility of Bitcoin in 2013 remains for future research. Currency users have the second smallest transaction sizes consistent with consumers making many small transactions in 8 . Testers keep small balances prior to 2012 although in 2013 their balances are larger reflecting early adopters who only did one trade when the Bitcoin price was low.325.02% of total Bitcoins in 2011 to 2. Then we calculate statistics based on the user mean wallet characteristics for each user type.593. Combined with evidence in Table 6 Panel A this suggests that active investors appear to be ‘all-in’ investors rather than active traders of Bitcoin. Active investors trade the least of all groups.90 as at 2013 end suggesting that some of these users captured are merchants. 5.

the user type receive only investors do not react to any measure of lagged returns and volatility.46 reached in September 2012. Currency users react to positive lagged returns and lagged daily volatility with a reduction in their holdings.14 with a standard deviation of 0. 5. by using TV we adjust for this natural growth by using supply as the denominator. a high TV means that there is considerable trading relative to the size of the market. Lagged daily or weekly volatility exhibit a positive influence on Bitcoin holdings. Since the Bitcoin supply grows at a steady pace. If the liquidity is positively related to past extreme returns or volatility it suggests speculative trading rather than transactional motives. These findings lead to the conclusion that the user groups display wallet characteristics consistent with the user classifications and that Bitcoin is rather a speculative asset than an alternative currency and money. Both lagged volatility and lagged returns increase the next day’s or next week’s TV pointing to the dominance of momentum and speculative traders as opposed to users who want to use Bitcoin as a currency and medium of exchange.order to purchase goods and services. 10% and 90%.6 TV may be seen as a measure of liquidity. 9 . All coefficient estimates are statistically insignificant. 5%. testers decrease (increase) their holdings with large positive (negative) returns on the previous day and positive returns in the past week.4 Turnover velocity Turnover velocity (TV) is the turnover over the supply of Bitcoin. [INSERT TABLE 7 HERE] 6 The average TV varies significantly around the mean of 0. Regressions of changes in Bitcoin balances for each user type on lagged daily returns and their extreme realizations (1%. It is generally used to work out how often the entire stock market is turned over. Hybrid users reduce their balance with lagged positive returns and increase their balances with lagged negative returns. Finally.29 and a maximum value of 4. we relate changes in the Bitcoin balances of user types to the past return performance of Bitcoin and the volatility of Bitcoin returns. Lagged volatility also leads to a reduction of active user holdings. In Table 7 we regressed TV on different realizations of extreme Bitcoin returns on the previous day (one lag) or the previous week. Hybrid users as at 2011 made larger transactions than receive only investors although by 2013 the mean and standard deviation of transaction sizes are similar. Consequently. In contrast. Finally. 95% and 99% quantiles) and on lagged volatility show that active investors increase their holdings after large positive returns and reduce their holdings after large negative returns.

regulatory oversight may be difficult and challenging. both in number and Bitcoin balances. 6. particularly users that only receive Bitcoin and never send to others. Analysing the Bitcoin public ledger. Conclusion Bitcoin’s intended purpose is as a medium of exchange but it may also be used as an asset and investment. we believe it is important to emphasise that this conclusion is based on its size. If the acceptance of Bitcoin or similar “virtual currencies” increased significantly on a global level. However. This suggests that at present Bitcoins are held for investment purposes rather than being used for transactions. Given Bitcoin’s global decentralized nature and independence from any central bank or supranational authority. We find Bitcoin return properties are very different from traditional asset classes and thus offer great diversification benefits. it could affect the behaviour of consumers and producers and as a consequence change the relevance of monetary policy. appear to use Bitcoin as a medium of exchange. 10 . A minority of users. Whether the evidence towards investment rather than currency and thus a medium of exchange is due to the volatility of Bitcoin is a matter for future research. Since the size of Bitcoin investments and transactions can be characterised as small relative to other assets we do not see an immediate risk or even threat for financial or monetary stability. we find about a third of Bitcoins are held by investors.

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Variable Explanation Asset Class bitr WinkDex (Bitcoin exchange rate index) sp5r S&P500 (US equity index) Equity sp6r S&P600 (US equity index) Equity gldr Gold Spot Precious Metal silvr Silver Spot Precious Metal eurr EUR USD (Euro to US Dollar exchange rate) Currency audr AUD USD (Australian Dollar to US Dollar exchange rate) Currency jpyr JPY USD (Japanese Yen to US Dollar exchange rate) Currency gbpr GBP USD (British Pounds to US Dollar exchange rate) Currency cnyr CNY USD (Chinese Yuen to US Dollar exchange rate) Currency hufr HUF USD (Hungarian Forint to US Dollar exchange rate) Currency twus Trade weighted US dollar index Currency wtir WTI 1 month (Crude oil index) Energy hhr HH 1 month (Natural gas index) Energy cbr Bloomberg US Corporate Bond Index Bond tbr Bloomberg US Treasury Bond Index Bond hbr Bloomberg USD High Yield Corporate Bond Index Bond 12 . Table 1 Variable list This table reports the list of 17 variables. explanation of the variables and the asset classes of the variables used in this analysis.

01% -0.06 Kurtosis 17.71% 0. Daily data between July 2010 and June 2015 is used.23% 2.03% Stdev 0.03% -0.58 13 .01% 0.17 0.29 -0.63 cnyr hufr twus wtir hhr cbr tbr hbr Mean -0.60% 0.97 9.31 -0.77 17.00% -0.87 4. standard deviation.18% Skewness 0.04% 0. bitr sp5r sp6r gldr silvr Eurr audr jpyr gbpr Mean 0.92 Kurtosis 13. Table 2 Descriptive Statistics This table reports the descriptive statistics (mean.98 3.89 -0.01% 0.27% 0.24 -0.03% 0.47% Skewness -1.27% 1.38 -0.01% -0.25 7.01% 0.00 -0.32 -0.02% 0.05 0. Prices for all other data are from Bloomberg.17 -1.19 0.49 -0.05% 0.04 8.56 4.36 5.22 3.79 4. skewness and kurtosis) of the variables.89 -0.20% 0. Bitcoin to USD data is from the WinkDex website.95% 1.06% 0.93% 0.09% 2.65% 0.58% 0.94 4.13% 0.29% 1.01 -0.85 8.16 3.05% 0.64 10.60% 0.27% 0.00% Stdev 7.85 12.01% 0.01% -0.64 0.

37 -0. Daily data between July 2010 and June 2015 is used.34 -0.42 -0.05 0. Correl bitr sp5r sp6r gldr silvr eurr audr jpyr gbpr cnyr hufr twus wtir hhr cbr tbr hbr bitr 1.04 -0.00 0.00 0.08 -0.36 0.18 0.80 -0.01 0.06 gbpr 1.02 0.19 hhr 1.14 -0.25 tbr 1.48 -0.00 -0.55 -0.41 0.16 -0.09 0.20 cnyr 1.01 cbr 1.00 0.20 -0.12 0.00 -0.11 0.00 0.20 -0.01 -0.32 sp6r 1.00 -0.21 -0.15 -0.06 0.14 0.01 -0.24 twus 1.01 -0.05 -0.03 -0.51 0.06 -0.07 -0.34 -0.05 0.18 0.02 -0.02 -0.00 0.03 -0.04 0.92 0.04 0.33 0.45 0.15 0.06 0.37 0.10 -0.02 0.00 -0.20 0.14 -0.81 0.12 0.22 0.07 0.05 0.03 -0.21 0.14 eurr 1.24 0.19 0.06 0.25 -0.03 -0.06 silvr 1.00 -0.05 0.06 0.00 -0.03 0.00 0. Prices for all other data are from Bloomberg.04 -0.14 0.01 0.15 -0.16 audr 1.05 0.03 0.05 0. Table 3 Correlation Matrix This table reports the return correlation between 17 assets used in the analysis.57 -0.09 0.00 -0.04 0.16 -0.22 0.01 0.13 0.21 -0.38 -0.00 -0.05 0.01 -0.32 -0.12 0.24 0.00 0.65 -0.10 -0.02 -0.59 -0.02 -0.29 -0.01 -0.09 0.00 0.32 jpyr 1. Bitcoin to USD data is from the WinkDex website.04 0.50 -0.00 0.32 0.15 0.29 0.31 wtir 1.24 -0.43 0.48 0.00 0.55 0.15 -0.12 -0.29 0.05 sp5r 1.04 -0.24 gldr 1.12 hbr 1.04 hufr 1.06 -0. including Bitcoin.05 0.05 -0.01 0.15 0.64 0.03 0.00 0.06 -0.33 0.00 14 .

7299 Panel B Coefficient Std.38 0.5079 on 4 and 1788 DF p-value 0. Error t-value p-value Intercept 0.6361 -0.08 0.0018 4.16 0. Table 4 Safe haven Analysis of Bitcoin Returns This table reports the estimation results testing if Bitcoin act as a safe haven if S&P500 stock returns exhibit extreme negative returns. Bitcoins are thus uncorrelated with S&P500 returns in normal periods and in periods of extreme negative stock returns.3865 15 .49 0.00 S&P500 0.0011 F-statistic 0.0023 F-statistic 1.2239 0.63 Interaction Terms 10% of S&P500 -0.0233 0.0099 0. Error t-value p-value Intercept 0.01 0.1020 0.87 R-squared 0.92 5% of S&P500 0.0133 -0.0007 0.0727 0.0185 0.09 0.16 0.4257 0.2366 0.1150 0.0076 0.74 0. Panel A Coefficient Std.08 0.49 0.0095 -0.31 R-squared 0.0073 0.46 1% of S&P500O -0.0231 -1.8735 0.7706 -0.93 Dummies 10% of S&P500 -0. The results show that Bitcoin returns do not display strong safe haven characteristics since the lower quantile interaction terms are not significantly different from zero.94 5% of S&P500 -0.63 1% of S&P500 -0.0370 on 4 and 1788 DF p-value 0.00 S&P500 0.0017 4.

90 16. 2012 and 2013.54 473.202 5.64 35.423.1. Table 5 Total Bitcoin Balances by User Types This table reports the total Bitcoin balances of various user types as at the end of 2011.28 3.841 12.118.65 4.44 3. Of USD % No.68 4.42 1.00 2.57 2.90 156.22 329.21 45.78 20.466 4.517 Receive Only 1.338 16 .494 0.730 Investor Hybrid 3.67 84.79 64.49 40.88 93.85 8.96 23.73 469.560 0.02 100.843 3.05 38.41 24.217 0.80 2. The data is transaction data from the Bitcoin public ledger from 9th January 2009 to 28th December 2013.47 24.089 Tester 2.031 Currency User 0. Of USD User Types Bitcoin Bitcoin Bitcoin % Share No.02 18.678 2.375 0.00 6.31 223. User types are defined in Section 5.88 2.30 1.927 1.90 46.722. 2.28 15.01 27. Of Users Value Share Users Value Share Users Value Active Investor 0.68 2.11 30.705 10.00 9.90 8.13 1.12 100.67 7.30 100.88 11.596.971 Total 8.809.97 1.61 142. Total Balances (millions) Balance Year End 2011 2012 2013 USD % No.18 8.58 39.16 761.99 294.02 34.33 121.00 720.54 389.34 4. Bitcoin to USD values are from Mt Gox and WinkDex.

927 1. Table 6 Bitcoin Wallet Characteristics by User Types This table reports the wallet characteristics of various user types as at the end of 2011.517 Receive Only 225.00 0.039.83 34.15 5.324.678 91.00 294.07 30.608.115.98 6.45 39.08 20. Number of Bitcoin Trades by User Types 2011 2012 2013 User Type Mean Std N Users Mean Std N Users Mean Std N Users Active Investor 3.70 469.941.089 Tester 1.00 761.118.14 388.10 469.217 2.79 761.687.843 8.971 Panel C.828.70 473.47 4. User types are defined in Section 5.494 43.22 1.54 40.971 Panel B.678 3.031 Currency 60.34 4.784 53.31 36.22 121. Panel A reports statistics for individual account Bitcoin balances.517 Investor Receive 97.84 473.47 1.96 39. Bitcoin Balances in USD of User Types 2011 2012 2013 User Type Mean Std N Users Mean Std N Users Mean Std N Users Active Investor 71.217 8.06 156.089 Tester 60.202 998.517 Receive Only 10.073.885.97 20.79 329.85 473.730 Investor Hybrid 3.41 156.88 294.90 39. 2012 and 2013.50 1596.120.23 58.60 370.56 29.94 84.33 33.593.42 114.09 2.00 0.27 387.730 Only Investor Hybrid 232.73 469.68 34.41 557.649.202 9.1.494 473.06 10.20 174.217 45.596.62 249.54 93.27 70.678 1.865.02 24.560 97.10 1.673.55 38.466 242.55 112.074.560 78.375 3.02 72.21 993.60 93.53 16.47 54.30 9.741.29 18.36 1.90 4.23 2.53 121.466 40.118.91 1.849.00 39.375 374.089 User Tester 4.118.4261.303.99 4.971 17 .730 Investor Hybrid 32.28 159.03 2.4927 7.00 156.799.325.96 20. Bitcoin to USD values are from Mt Gox and WinkDex.031 Currency User 38.466 7.76 93.61 84.460.784 12.71 8.38 4. Transaction Size by User Types 2011 2012 2013 User Type Mean Std N Users Mean Std N Users Mean Std N Users Active 16.031 Currency User 77.99 1.01 149. Panel B for number of Bitcoin trades and Panel C for transaction size across various user types.90 84.868.197.843 759.21 1.00 121.375 18. Panel A.56 3.98 57.72 34.229.494 130. The data is transaction data from the Bitcoin public ledger from 9th January 2009 to 28th December 2013.560 68.927 1.268.87 761.424.6202 672.039.784 377.30 329.875.14 1.80 156.33 329.843 11.12 39.97 3.

004 *** lag1bitret*p95_lagwbitretd -0.545 0.008 1.843 0. 1251 18 .206 lagwbitret 0.399 0.652 -1.047 ** lag1bitret*p1_lag1bitretd -0.025 0.345 -1.602 -2.556 -0.19 0.205 -1.199 No of obs.06 0.58 0.383 0.424 0.190 lag1bitret*p90_lagwbitretd 0.03 0.26 0.764 0.24 0.243 0.037 3.026 ** lagwbitvol 0.115 lag1bitret*p95_lag1bitretd -0.19 0.17 0.48 0.209 2.034 0.486 -2.385 -2.171 0.31 0.619 lag1bitret*p99_lag1bitretd 0.04 0.003 *** lag1bitret*p1_lagwbitretd -0.09 0.590 0.323 1.245 -1.319 0.36 0.99 0.241 lag1bitret*p90_lag1bitretd -0. Error t-value Pr > |t| intercept -3.345 0.297 1.929 lag1bitret*p10_lagwbitretd 0.258 -0.258 0.92 0.236 lag1bitret*p99_lagwbitretd -0.001 *** lag1bitret 0.252 1.02 0.291 Day Fixed Effects Yes Month Fixed Effects Yes Year Fixed Effects Yes Daily Time Trend Yes Adjusted R-squared 0. Table 7 Determinants of Bitcoin Turnover Velocity Parameter Estimate Std.5 0.113 0.472 -0.610 0.029 ** lag1bitret*p5_lag1bitretd -0.717 lag1bitret*p5_lagwbitretd 0.043 ** lag1bitvol -1.115 3.128 0.965 lag1bitret*p10_lag1bitretd -0.

Figure 1: Bitcoin Price to USD 1400 1200 1000 Bitcoin to USD 800 600 400 200 0 7/18/2010 7/18/2011 7/18/2012 7/18/2013 7/18/2014 19 .

Figure 2: Rolling (4-months) autocorrelation of Bitcoin returns 20 .

Figure 3: Scatter plot Bitcoin returns and S&P500 returns 21 .