Also, we find that the dynamics of Bitcoin volatility are different from and unrelated to FX volatility which suggests that Bitcoin does not (yet) belong to the global market of currencies. We understand such a high level of volatility as an obstacle for Bitcoin to perform all functions associated with a currency (means of exchange, unit of account, and store of value) in a reliable and efficient manner. We find that Bitcoin markets exhibit excess volatility in the sense that the volatility is up to 10 times higher than the volatility of the exchange rates. We use data from six different markets, covering Bitcoin exchange rates with the US dollar, the euro, and the Japanese yen and compare them with USD/EUR and USD/YEN exchange rates. We contribute to the literature with an in-depth analysis of Bitcoin volatility and its implications on the usage of Bitcoin as a currency, a diversifier or hedge, and a store of value. All authors conclude that the volatility level is comparatively high, offering different explanations such as cyber attacks, information asymmetry, decentralization, or the absence of regulation. ( 2019) rely on GARCH models to estimate daily volatility. Bouoiyour and Selmi ( 2016), Bouri et al.
Gox, BTC, and Bitstamp and concludes that these are 5–7 times higher than what is generally observed in stock markets. Dwyer ( 2015), for example, analyzes monthly standard deviations of Bitcoin prices from Mt. There are numerous studies that look into the volatility of Bitcoin. Whether Bitcoin serves to diversify the risk of an investment portfolio is analyzed by Brière et al. Trading aspects are considered by Cheah and Fry ( 2015) and Blau ( 2018) who investigate speculative behavior in Bitcoin trading. The literature on Bitcoin is relatively new and has grown very fast in recent years. Both aspects-investment or currency-are heavily influenced by the level and nature of volatility, and our results suggest that Bitcoin does not work as a currency. In this article, we conduct a detailed analysis of the Bitcoin market with a particular focus on volatility. However, due to its high volatility, most empirical studies classify Bitcoin as an investment (Glaser et al. The most prominent cryptocurrency, Bitcoin, is designed as a peer-to-peer cash system (see Nakamoto 2008) and thus has features of a currency. Cryptocurrencies are a new phenomenon compared to traditional fiat currencies and assets such as gold.
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