The Demand For Money: Crypto vs. Fiat Currencies

Earlier, we examined Demand for fiat currencies and found they had an Upper and Outer Demand Frontier.  Those types of monies have existed for millennia.  A new form of exchange began to take off over a decade ago.

Cryptocurrencies began to become popular with the advent of Bitcoin.  How does the Demand for cryptocurrencies behave relative to the one for fiat currencies?  As it happens, when it comes to Demand, both payment forms have something important in common.

Below, using a fiat currency study from July and one on crypto 20 days later, note the slopes of their Demand Frontiers are nearly identical.  At left in yellow, the crypto Demand Frontier slope is -1.47 (P-Value 1.28E-04), while that for fiat currencies is -1.42 (P-Value 7.88E-05).  At that time, at the Demand Frontier, cryptocurrencies had reached about 1/1000th of the fiat currency extent. Observe with the steep cryptocurrency Demand Frontier, at its limit, there is more money at the upper end of this curve.  Bitcoin’s market capitalization was nearly twice that of the rest of its market combined.

We need to see how each currency form reacts to the coronavirus. Look for my next post on that.

#currency #demandforecasting #cryptocurrencies #currencytrading