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School of Business | Department of Finance | Finance | 2014
Thesis number: 13626
Bitcoin as a monetary system: Examining attention and attendance
Author: Huhtinen, Timo-Pekka
Title: Bitcoin as a monetary system: Examining attention and attendance
Year: 2014  Language: eng
Department: Department of Finance
Academic subject: Finance
Index terms: rahoitus; financing; rahatalous; monetary economics; internet; internet; raha; money; virtuaalitodellisuus; virtual reality; pankit; banks; rahapolitiikka; monetary policy; tietoyhteiskunta; information society
Pages: 110
Full text:
» hse_ethesis_13626.pdf pdf  size:6 MB (5681226)
Key terms: cryptocurrencies; blockchain; virtual currencies; regulation; central banking; monetary policy; decentralization; disintermediation; monetary systems; Google Trends; hashrate; Granger; momentum; inflation; Mt.Gox; gold; cypherpunks; cryptography; free market; intrinsic value

This thesis has three objectives. First, the past development of monetary systems is studied to see how Bitcoin is positioned as the forerunner of a new category. Second, the attitudes and expecta-tions of Finnish stakeholders are studied to recognize the general perception and future outlook for Bitcoin. Third, bitcoins are examined as an investment instrument by studying price drivers and the degree of predictability of future returns.


The qualitative methods are based on a literature review and an interview study conducted with Finnish stakeholders from different financial institutions and Bitcoin start-ups. The quantitative methods consist of market sizing calculations, a regression analysis, and Granger tests. The regres-sions utilize novel variables network hashrate, network transactions, and bitcoin supply as explan-atory variables for bitcoin price. Also bitcoin price and Google Trends SVI are used as explanatory variables. The market sizing calculations are based on M2 monetary aggregates for USD, EUR, and JPY.


The thesis develops a categorization for decentralized cpytocurrencies that takes into account the main developments of the past monetary systems. The interview study reveals optimism for the technology behind Bitcoin and other decentralized systems, while all interviewees accept the un-certainty of Bitcoin survival. The stakeholders perceive the main challenges of Bitcoin to be tech-nological weaknesses, trust, and reputational issues. In terms of market sizing, it is clear that Bitcoin is not currently a serious threat to fiat currencies. Price driver analysis revealed a momen-tum effect in price returns, as well as an inflationary effect caused by the increasing supply. Also the network hashrate was found to forecast future bitcoin returns. The results from the Granger tests challenge the causality assumed in the regressions.
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