Abstract
I exploit the perfect ledger feature of Bitcoin to find the degree to which Bitcoin-to-fiat exchange activity is associated with increased user-to-user transactions on the Bitcoin network with two distinct but complementary methodologies. First, I use an instrumental variable strategy to estimate the elasticity of user-to-user Bitcoin transaction activity with respect to fiat-to-Bitcoin exchange activity. Secondly, I use vector autoregression to determine the dynamic effects of fiat-to-Bitcoin exchange innovations in user-to-user Bitcoin transactions. In both approaches I find strong evidence of speculative hoarding of Bitcoin via the weak transmission of fiat-to-Bitcoin exchange activity to user-to-user Bitcoin network transactions.
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