As explained by Böhme, Brenner, Moore & Smith (2014) virtual wallets, which are the main determinants in this mode of payment, and use the combination of the public and private key, the storage can either be online or on a computer or just on a piece of paper. Each of the above methods offers its own advantages and disadvantages, which revolves around security, availability, and convenience. Regardless of the above, the primary downside is that when a user loses the primary key, they cannot get into the system. Additionally, even though transactions in this system can still be tracked, the tracking process is challenging because the transactions are not anonymous. The challenge here is that the tracking process requires linking the process with the real world, a fact that offers enormous disadvantages.
In such an event, it becomes hard for those who lose their investment to track the entire process and have their money back. This explains why those dealing with this system would want to utilize it by underpinning the efforts of others to succeed through the application of this system.
Due to this currency’s lope holes to crimes, some countries have decided to ban this payment system. For instance, this payment method has been vulnerable to invasion by criminal networks. Some states, for instance, have a weakening ability when it comes to controlling the capital flow of wealth, internationally and domestically, in decentralized transactions, which involves crypto-currency. This payment process also restricts the abilities of the citizens from rallying against the state and in the event reducing the people’s civil rights, among other things. Even so, the states have strived to ensure they make crypto-currency a less sensitive factor by making the crime payment rewards less rewarding.
Financial and Quantitative Analysis
Volatility
It should be noted that when there is a global financial turmoil, there is a one-on-one impact on assets, economies, and currencies affecting trade around the world. Financial turmoil also does affect the market participators with their investment decisions. It should be noted that at the time of crisis, it ensures the investors are more inclined in the context of redistributing investments to those assets that are somewhat safe-havens, including the currencies.
According to Baum (2018), currency is an asset that is a safe haven, if the international investors agree to invest in it, to minimize the loss that would occur if there is a period of financial turmoil. Financial turmoil has a direct effect on the development of the currency exchange rates, and is measured in volatility. In the event, it becomes essential to include such in an exchange rate model. With that, it is vital to note that the irregularities that cryptocurrency causes, due to its vulnerability to criminals, cause financial turmoil in international investments. Upon such happening, it sends adverse shocks to the equities that generate volatility than it does in positive shocks.
Research Design
Data
The variable in this analysis context would be the exchange rate that occurs between the US dollar and Bitcoin, a crypto-currency that is commonly used by this payment system.
The original data occurs as a daily post rate, which occurred in a period of three years from 2015 to 2018. The daily data are then modified into weekly averages to avoid the potential that autocorrects the daily data. When Bitcoin is traded in this category on a daily basis, the data is filtered so that the only data in use is that which comes from observations. The dependent and independent variables are explained below and are chosen in the context of the already recorded literature and that, which is believed to affect Bitcoin prices.