BITCOIN: CURRENCY OR COMMODITY A Look into Classifying Everybody’s Favorite Cryptocurrency

Abstract

Because of its rapid rise and increasing popularity, Bitcoin commands more than just a diehard regiment of believers. With interest from multiple parties across a variety of fields, the cryptocurrency would benefit from a clearer classification of its status as an asset. We focus on currencies and commodities as viable standards of comparison and use a plethora of metrics to characterize Bitcoin. Such techniques include, but are not limited to, GARCH(1, 1) models and Garman-Kolhagen-based option pricing models. Due to the idiosyncrasies of Bitcoin, we have to make some assumptions about interest rate and liquidity. Following, we find that Bitcoin seems to behave like a currency with respect to fit of a GARCH(1, 1) model based on the Ljung-Box test on residuals and appears to behave like a commodity in terms of price variance.