Bitcoin an Unidentified Financial Object

Bitcoin is generally defined as a virtual currency that is found on the internet. But strictly speaking, can it be considered as a currency ? Does Bitcoin fit that description ?

Is it not rather a financial asset which performances would be compatible with others assets such as gold ? Or on the contrary, is it not a new asset class which -until now- was unknown ? Let’s try to look into it more closely…

« Bitcoin is a currency !» Yes but…

What is, exactly, a currency ? If we look it up, Wikipedia defines it as such: “Aristotle defines currency by three characteristics: first it must be a unit of account, be exchangeable and durable.”

Let’s take a look at the first one, unit of accounts. Bitcoin allows indeed to measure the value of a good or a service and can be stocked for future use. For instance, one can determine that a painting is worth 2 or 3 bitcoins, there is no limit to the measurable goods. There is no arguing, bitcoin fits this first characteristic.

It is a means of exchange. Any type of goods or services could be bought with Bitcoin. Finally, it is durable, does not fade nor corrode with time and can be used in the future. If we stop here, one could easily conclude that Bitcoin is a currency just like any other.

However, if we look at the precise definition of the last characteristics, limits can be drawn. Wikipedia defines the function of exchange as such: “a currency allows to overcome the limits of barter by creating an exchangeable value in return for goods and services insofar as the other actors of the economy embrace it. ” Yet, Bitcoin does not fully fit this last point since it is not legal tender, meaning that it would be recognized by public authority and allowed and accepted by every merchant in a country or zone. For example, the Euro currency is legal tender. In France, according to the article R.642–3 from Penal Code, refusing to accept bills and coins of said currency can lead to sanctions.

The notion of “store of value” is also to be debated. Store of value means the capacity that a financial instrument has to transfer buying power throughout time (Wikipedia). To transfer buying power into the future, it needs the guarantee that it will not fade, that it will still exist and keep a constant value. Yet, Bitcoin is highly unstable since it rests exclusively on the principle of supply and demand and, unlike other currencies, is not regulated by states or central banks. For instance, if the Euro loses or gains too much value, the European Central Bank can intervene to regulate its fluctuations.

In its history, Bitcoin has gone through brutal and sudden drops in a very short period of time. For example, on November 30, 2013, its value was worth $1150,73 and dropped to $547,53 on December 18, only two weeks later. This fall followed a mistrust from Chinese investors after the Chinese Central Bank refused to authorize the legal tender of Bitcoin and warned about the risks and perils of investing in Bitcoin (Article from the Los Angeles Times). Strong variations can also happen in the aftermath of speculative bubbles, for instance a 60% drop occurred on April 12 of 2013. More recently, the same happened with a 30% depreciation in two days (from 2300 to 1680 euros) following a significant bull market in April and May 2017.

Source: “Bitcoin : Currency or Asset”, November 2015
Bitcoin value from 22 to 31 May 2017

So Bitcoin does not perfectly fit the three characteristics proper to currency. The other function which can characterize currency is the means of payment. In “Aux origines de la Monnaie”2001, a French anthropologist defines it as the most important function, even beyond the more commonly admitted « means of exchange ».

A means of payment ? Technically, yes.

To understand the notion of means of payment, several aspects are to be looked at. Where do we pay with Bitcoin? What is the volume of exchanges of other means of payment ? What’s the profile of people who use Bitcoins ? The website, created in 2013, gives access to information and allows to get an idea of physical experiences with this currency in every country. The list may not be exhaustive since it rests on declarations (one can wonder why Africa is not well represented, including Nigeria) but it shows that it is possible to pay with Bitcoins in the physical world and everywhere in the world.

Countries using the bitcoin in the physical world (SatoshiLabs)
New York shop : bitcoin accepted here

Furthermore, Japan is developing its use. If today 4500 shops allow Bitcoin payments, soon 260 000 shops will be concerned within the islands as explained in a Numerama article (April 6). For more information on the matter, read the following article Bitcoin Payment Makes Way To Japanese Retailers, 30 May17 . Recently, a Japanese air company offered their clients the possibility to pay their flying tickets with Bitcoins: Peach Airline to Accept Bitcoin After Japan Recognizes Cryptocurrency

As for its use in the digital world, it is not limited to darknet as the media may have led to think. It is also possible to pay with Bitcoins on e-commerce websites. The French website can give you a glimpse of it (

One of the limits of Bitcoin is the lack of protection and security of the user in case of fraudulent use. That security is paramount for the traditional means of payment (credit cards) and currently limits the trust and its potential adoption by an average citizen in their everyday life. If a credit card is stolen or fraudulently used, banks have to refund. It is not true for Bitcoins. Indeed, if the protocol is forgery-proof, the exchange platforms on the other hand can be hacked. That notion of trust is very important with Bitcoin and this matter will be detailed in our third article “Profile/User”

Yes, Bitcoin is used as a means of payment, but is its use really significant ?

The idea would be to look at the current use of Bitcoin. We can already look at the volume of transactions per day on a global scale and by comparing it to other means such as Paypal or credit cards.


With 300 000 transactions per day vs 1.2 billion for credit cards, we can consider Bitcoin volume to be anecdotal for now. But do those who own Bitcoins use it as a means of payment ? The survey “Bitcoin: currency or asset” published in November 2015 shed some lights on the matter. We will draw on said survey for the rest of our article. It distinguishes active and receive only investors who buy Bitcoins with the intent to speculate or invest and those who use it as a currency (currency users) to buy goods and services.

Total Bitcoin Balances by User Types from “ Bitcoin: currency or asset?”

Between 2011 and 2013, it has been observed that if the share of investors in the population using Bitcoins goes from 27,36 to 34,62, the share of currency users varies from 7,02% to 2,54%, which is a significant fall. The survey draws the conclusion that Bitcoin, for a majority of its users, is considered to be a financial asset more than a means of payment.

Bitcoin could be a financial asset: but which type ?

Could it be a speculative asset ? To answer that we can look at its volatility which we calculated based on the daily exchange rates between October 2011 and April 2017

Bitcoin Volatility between 2011 & April 2017

We have observed that if its volatility was extremely high at the beginning, it has indeed stabilized since 2015. We could therefore say that Bitcoin is less and less speculative. However, if we compare this volatility with other assets’ (which was done in the survey “Bitcoin: currency or asset), Bitcoin’s volatility remains extremely high.

Bitcoin volatility vs other financial asset, extract from “Bitcoin : Currency or Asset ?”

This asset owns strong characteristics of speculation but not solely. It seems to be evolving, and therefore it is not enough to describe it as a speculative asset.

Is Bitcoin a safe haven value ?

The media have been focusing on the financial performances of this « digital gold » which seems to be breaking records weeks after weeks: has Bitcoin become a safe haven value?

First, what is a safe haven value? It is considered a currency that fluctuates less than its benchmark index, possesses a low volatility and is therefore safer. Some share prices are in fact safe investments, currencies (in particular USD and Swiss franc) or gold which is historically considered to be the safest investment by definition.

The notion of safe haven value can be evaluated from a behavioral point of view, meaning the tendency that investors have to “take refuge” in the case of slumps of other assets. It is in that sense that gold is viewed as a safe investment, more than for its volatility, which is far from low and — if we only consider this last criteria- would not be a safe investment.

This notion of safe investment has been all the more evoked since the price of Bitcoins has exceeded the price of gold for the first time on 2 March 2017.

One of the first analyses consists in looking at the correlation between Bitcoin’s share prices trends (between 2011 and 2017) and other financial assets (Nasdaq, S&P), the dollar, the euro, raw materials (Ishares Commodities) prices and of course, gold. There is no particular correlation between Bitcoin and the other studied assets according to the survey “Bitcoin : currency or asset ?”

Correlation Matrix” “Bitcoin: Currency or Asset ?”

If it were a safe investment, we should have observed a behavior similar to gold’s, particularly at critical moments on stock markets. Gold being known for reacting at the opposite of stock markets in tense situations.

With this in mind, we can look at the beginning of the Chinese financial crisis in January 2016 following the Chinese currency’s depreciation by the Government and the small market crash in summer 2015 (Le Monde Article, January 2016). This small market crash had repercussions on European and American markets within weeks. The idea was to look at this particular example to observe whether a “safe investment” behavior followed in China and in the West.

Gold price between April and July ( / Bitcoin’s price on BTC China (

We found that there was no particular boom for Bitcoin during that period of time, at the opposite of gold which acted as an immediate safe investment. The survey “Bitcoin: currency or asset ?” performed this type of exercises on a longer period of time, comparing Bitcoin’s behavior to S&P’s to see if a safe investment behavior could be noted following drops in American share prices.

Study of the notion of « safe investment » extract from “Bitcoin: Currency or asset ?”

The survey observes no opposite reaction between the S&P500 prices and Bitcoin’s prices even during a sudden drop of the S&P500, there is no systematic security from investors with Bitcoin. So from our point of view, we cannot speak of safe haven value.

Bitcoin is above all an unidentified asset in constant evolution

If Bitcoin seems to be more a financial asset than a currency, it is like no other known asset. The datavisualization (see notre article “ Visualizing Bitcoin “), which we recently published, shows us it does not fit any description possesses its own representation.

Some characteristics (legal tender, means of payment for example) are not frozen and could characterize it in the future depending on where states and institutions will stand regarding this new asset.

Datavisualisation : Bitcoin vs gold/cash/e currency (@blockexplorers)

But what will become of the Libertarian ideal which made this currency possible with the desire to create an alternative to our financial system if its general approval comes from the recognition of States and financial institutions which it aspires to be free of ? Especially if the legalization of this currency is to control it better ? Paradoxical, isn’t it?

Is this ideal moving towards a crypto currency which will replace Bitcoin until it is this other crypto currency’s turn to be legalized and then replaced ? Crypto currencies would then be doomed to remain ephemeral, acting as cash, which by the states’ decision will end up disappearing, digital cash: namely, a means of contestation in controlling societies.

What do you think about that ?

Here is a video from Bloomberg (26 May 2017)