Abstract
Hotelling's Rule of non-renewable resource extraction was first proposed in 1931, but strong empirical evidence supporting Hotelling's predictions has been elusive. Recognizing the complications in natural resource markets, we test Hotelling's Rule using bitcoin rents. Bitcoin is similar to natural resources in that new coins enter the market solely through the efforts of individual agents expending computer resources to attain bitcoins, which can then be sold on exchanges for profit. Bitcoin has a fixed and known resource stock, can be accessed by anyone with a computer, exhibits a fairly homogeneous and easily modeled mining'' technology, and extraction rates follow restricted and pre-determined patterns. Aspects of capital investment and mining returns are observable and can be tracked over time, making bitcoin an ideal test bed for Hotelling's Rule. We calculate the growth rate of the net asset price of Bitcoin, and compare it to the growth rate of several market indicies (GSPC, HYG) over the same time period. We test for and find evidence of a co-integrating relationship, providing support for Hotelling's rule in that any deviations from the theoretical price path bring economic forces to bear that restore the proper pricing relationship.
Sign-in/Register to access full text options 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
