Cash vs. Bitcoin: A Surprising Win?
The Covid-19 outbreak has rekindled talk about cash's demise. However, as Marc Schwartz (class 84), CEO of the Monnaie de Paris, the French Mint, and Yannis Messaoui, economics student (Yale 19, HEC), explain, currency does not appear to be ready to retire just yet. They recently published a paper for Terra Nova titled "The Great Paradox or Why Cash's Reign Is Far From Over," in which they explore the history of money and explain why cash is not (yet) on its way out.
Marc Schwartz ( Chairman and CEO of Monnaie de Paris )
Cash's importance as a source of payment is dwindling. That is a proven fact. You can pay for your bread at the bakery using a contactless card, which, symbolically, presents questions. We recently speculated that raising the contactless payment threshold from 30 to 50 euros will result in the abolition of cash. This, in our opinion, has very little impact: we know that the point at which we transition from cash to card payment is around 20 to 25 euros. The absence of the floor, which no longer requires you to pay cash for little sums, has, on the other hand, significantly reduced the use of currency.
The role of the pandemic in this phenomenon.
Marc Schwartz: The essential point was the coronavirus! Cash payments were a source of concern during the health crisis. Because banknotes and coins are handed from person to person, they are thought to represent a greater risk of viral transmission. Scientific research, on the other hand, have proved that this is not the case. The virus's lifespan on a banknote is 10 to 100 times shorter than on stainless steel or a doorknob. Coins are also made of copper, which is a bactericidal substance. As a result, the truth contradicts the rumor! This incorrect notion has spread to the point where avoiding cash is frequently misconstrued as an anti-Covid safety measure, with store banners urging customers to use contactless payment instead.However, it's vital to remember that the Health Ministry is in charge of determining what safety precautions should be required... Despite the fact that paying with a credit card was not one of them, the concept has caught on, and cash usage has decreased.
The Impact of Coronavirus Pandemic on Bitcoin
Bitcoin differs from traditional currencies in a number of ways. Digital convenience protects Bitcoin users' safety and convenience, but decentralization is also a major benefit. Not only does this sort of cryptocurrency have numerous advantages, but it also has a number of drawbacks. Extreme volatility and the impact of negative externalities on Bitcoin's value play a role in determining market Bitcoin trends. The latest coronavirus (COVID-19) epidemic has showed signs of influencing Bitcoin pricing as the virus spreads across continents, throwing the global financial system into chaos. Bitcoin's designation as a portfolio diversifier, a hedge, or a safe haven is influenced by a number of circumstances, including global economic uncertainty.
Has Bitcoin's Hedge Effectiveness Been Affected by COVID-19?
Following the outbreak of Covid-19, the Bitcoin market has become a research center. The links between Bitcoin spot and futures are the topic of this research. To investigate the dynamic correlation and volatility spillover and assess the risk reduction of Bitcoin futures to spot, we use the vector autoregression-dynamic correlation coefficient-generalized autoregressive conditional heteroskedasticity (VAR-DCC-GARCH) model and the vector autoregression-Baba, Engle, Kraft, and Kroner-generalized autoregressive conditional heteroskedasticity (VAR-BEKK-GARCH) model.The empirical findings show that the Bitcoin spot and futures markets are highly intertwined; second, there is a bi-directional volatility spillover between the spot and futures markets; and third, the HE value is equal to 0.6446, indicating that Bitcoin futures can indeed hedge risks in the Bitcoin spot market. To do the robustness checks, we also update the data to the post-Covid-19 timeframe. The findings do not affect our conclusion that Bitcoin futures can be used to hedge risks in the Bitcoin spot market, and the post-Covid-19 data suggest that Bitcoin futures' hedging potential has improved.
Finally, we examine whether gold futures may be utilized as a Bitcoin spot market hedge, as well as other cryptocurrencies, to demonstrate the Bitcoin futures' capacity to hedge the Bitcoin spot market.