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On the Value of Virtual Currencies

This paper develops an economic framework to analyze the exchange rate of virtual currency. Three components are important. First, the current use of virtual currency to make payments. Second, the decision of forward-looking investors to buy virtual currency (thereby effectively regulating its supply). Third, the elements that jointly drive future consumer adoption and merchant acceptance of virtual currency. The model predicts that, as virtual currency becomes more established, the exchange rate will become less sensitive to the impact of shocks to speculators’ beliefs. This undermines the notion that excessive exchange rate volatility will prohibit widespread use of virtual currency.

Cleo Turner
Cleo is DFI's CDFP coach and helps our students with the apply section of the Certified Digital Finance Practitioner (CDFP) program. As part of her role Cleo shares useful resources and insights from a wide variety of sources and authors with our community.

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