Abstract
Bitcoin, exchangeable for legal tender, and blockchain, the novel form of digital ledger technology it is based on, are often confused and conflated. We make the case that, in some respects, this conflation is justified. The price action in Bitcoin is consistent with a prototyping phase of a new technological breakthrough. In support of this, we test empirically software decisions with real world consequences. We find that for the period July 2010 to July 2017, Bitcoin is a hedge of implied inflation expectations, as proxied by Treasury Inflation Protected securities' breakevens. We construct a vector error correction model between Bitcoin and Ethereum. We examine whether the Bitcoin price obeys the law of one price by comparing actual trade data across two exchanges. We highlight the hard fork of Bitcoin into Bitcoin [Classic] and Bitcoin Cash, which is suggestive that splits enhance value. We dovetail this with existing theory to argue that the US Dollar price of Bitcoin may be reflecting estimates of the market penetration of distributed ledger technologies, and its time frame for adoption. This may suggest that the price declines of 2018 reflect a loss of confidence in this adoption.
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