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Inflation Expectation and Cryptocurrency Investment

Author

Listed:
  • Lin William Cong
  • Pulak Ghosh
  • Jiasun Li
  • Qihong Ruan

Abstract

Using proprietary data from the predominant cryptocurrency exchange in India together with the country's Household Inflation Expectations Survey, we document a significantly positive association between inflation expectations and individual cryptocurrency purchases. Higher inflation expectations are also associated with more new investors in cryptocurrencies. We investigate investment heterogeneity in multiple dimensions, and find the effect to be concentrated in Bitcoin (BTC) and Tether (USDT) trading. The results are robust after controlling for speculative demand captured by surveys of investors' expected cryptocurrency returns, and admit causal interpretations as confirmed using multiple instrumental variables. Our findings provide direct evidence that households already adopt cryptocurrencies for inflation hedging, which in turn rationalizes their high adoption in developing countries without a globally dominant currency.

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  • Lin William Cong & Pulak Ghosh & Jiasun Li & Qihong Ruan, 2024. "Inflation Expectation and Cryptocurrency Investment," NBER Working Papers 32945, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:32945
    Note: AP
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    JEL classification:

    • G0 - Financial Economics - - General

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