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SWIFT Cryptocurrency research: Bitcoin takes over fiat money?

Polina Zelikova | Sep. 7, 2016
SWIFT Cryptocurrency research: Bitcoin takes over fiat money?

The SWIFT Institute has published its latest research, which assesses the relationship between virtual currencies and fiat money. What are the key findings, will Bitcoin takes over fiat money? 

7 September, AtoZForex – The SWIFT Institute has conducted a research aiming to examine if Bitcoin takes over fiat money. The research paper is called “Virtual currencies: Media of exchange or speculative assets?”. It analyses the relationship between the virtual currencies and fiat currencies and assesses if virtual currencies can cause any monetary, financial or economic instability.

The institute's paper was written by Dirk G. Baur, UWA Business School, Adrian D. Lee, University of Technology Sydney (Australia) and KiHoon Hong, Hongik University College of Business (South Korea). Based on the research conducted, the key points are summarized below.

What is the correlation between conventional assets and Bitcoin?

According to the research paper of SWIFT, returns on Bitcoin are not correlated with the traditional asset classes like stocks, bonds or commodities neither during financial turmoil nor during normal times. Furthermore, the research of the institute finds out that the structure and size of the virtual currencies’ market do not impose a risk on monetary, financial or economic stability. According to KiHoon Hong, a professor at the Hongik University College of Business:

“Contrary to conventional wisdom, our research shows that fiat currencies crowd out Bitcoin, not the reverse, and that the design and size of the Bitcoin market deprives the currency of its intended use as a medium of exchange.”

See also: Gold edges higher on September Fed rate hike uncertainty

Will the government issued Fiat currencies be crowded out?

The empirical analysis of Bitcoin prices and user accounts (wallets) discovers that Bitcoin is primarily used as a speculative investment rather than a medium of exchange. The research finds that the price of speculators in cryptocurrencies has an adverse effect on their attribute as a medium of exchange. Hence, SWIFT concludes that the substitution of government issued fiat currencies like USD, by virtual currencies is not likely to take place.

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