Bitcoin, a currency or a speculative asset?

Objectives The main objective of this study is to explore whether Bitcoin users use Bitcoin as a currency or as a speculative investment. By judging Bitcoin against the classic functions of money, this study can answer whether Bitcoin can function as a currency, and if its users have been using it as such. Summary This paper focuses on evaluating how Bitcoin may fulfill money’s ‘store of value’ and ‘medium of exchange’ functions. The reasonings are as follow: If Bitcoin can act as a store of value, which means its buying power could be stored to a later point of time, then its on-chain transaction volume should not be affected by its exchange price. On the other hand, if Bitcoin is used purely as a means of payment, its transaction volume could be affected by the transaction fee. Consequently, a regression model was developed with Bitcoin on-chain transaction volume being dependent variable, transaction fee and exchange price being regressors. The testing model employed was Robust Least Squares, which is a simple linear regression model that considers outliers of data. Failure to confirm either of these functions would result in Bitcoin not being used as means of payment. Such conclusion suggests that speculation investment is a major purpose considered by Bitcoin users. The time frame of sample is from July 2016 to March 2019, when Bitcoin experience its most significant volatility after almost 10 years since its inception. Conclusions The result from the tests implies a negative relationship between changes in transaction fee and transaction volume, whereas no relationship is found between exchange price and transaction volume. This confirms Bitcoin’s behavior as both ‘store of value’ and ‘medium of exchange’. Therefore, the paper conclude that Bitcoin users do use it as a currency/ means of payment, and that Bitcoin is not purely a speculation instrument