The growing popularity of Bitcoins as an alternative currency has fueled the industry’s imagination for a related exchange traded fund. However, a new economic study contends that the crypto-currency could be more of a speculative play.
According to David Yermack of the Stern School of Business at New York University, the Bitcoin “does not behave like a currency at all” and shows similar traits to some Internet stocks that collapsed in the 90s, reports Simon Kennedy for Bloomberg.
Yermack compared the Bitcoin against other major sovereign currencies based on medium of exchange, a unit of account and store of value. The crypto-currency serves as a medium of exchange as more places accept the money, but the currency fails as a unit of account and store of value.
The digital currency is volatile and its exchange rate with the U.S. dollar “has virtually zero correlation” with how the dollar trades against other currencies, Yermack argued, making the currency’s “risk nearly impossible to hedge for businesses and customers and renders it more or less useless as a tool for risk management.”
The Bitcoin currency surged above $1,200 earlier this year but currently resides below $700.