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Munich Personal RePEc Archive

The Equilibrium Value of Bitcoin

Radwanski, Juliusz (2021): The Equilibrium Value of Bitcoin.

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Abstract

Can the value of a cryptocurrency be uniquely determined by the fundamentals, such as the rule for money growth implicit in the design of the protocol? To answer this question, we construct a recursive asset-pricing model for a single fiat cryptocurrency, similar to actual Bitcoin. We think of our model as an ideal laboratory, in which equilibria correspond to model solutions that can generate actual data. Our approach stresses the role of the value function as an object of rational choice and hence rests on solid micro-foundations. By imposing enough economically motivated restrictions on that choice, we are able to pin down unique equilibrium and hence demonstrate that the value of our cryptocurrency is immune to self-fulfilling expectations. This result depends only on the design of the cryptocurrency protocol.

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