The Emergence of Cryptocurrency (Bitcoin) and How it is Valued “An Empirical Evidence”

Cryptocurrency, a phenomenon that has flooded main stream media and gained the interests of all walks of life may they be academic, governmental or financial but what is it exactly, is it a currency to be used as a medium of exchange to buy and sell products and services, is it an asset that can be used as a store of value? Does it have any intrinsic value? Or is it a technological trend used as a speculative asset and will fade away with time. In order to have a clearer understanding of cryptocurrency this thesis used the cryptocurrency with the largest market share BITCOIN. The data that was gathered did not only include when it started circulation and its price in the market but included all elements that are used in the mining process. From the data gathered two things were implemented. A cost of production model to identify the intrinsic value of mining for a BITCOIN and if it is worth the investment, after that an ARDL approach was used with long and short run modules and an error correction term, finally to support the findings reached a Granger Causality Test was used. For the cost of production model the results proved that BITCOIN in its present form and network is not fundamentally used as a medium of exchange but rather a store of value. Most importantly it showed that the opportunity cost of buying BITCOINS was far more profitable than mining for it. For the ARDL approach the finding proved that some variables had a significant impact on market price while other variables had a negative yet statistically significant impact on market price. Keywords: Cryptocurrency, Bitcoin, Cost of Production, ARDL