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Hedonic Pricing of Cryptocurrency Tokens

Author

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  • Shorish, Jamsheed

    (Shorish Research)

Abstract

A cryptocurrency token offers a method of incentivizing behavior in a way that supports trusted interaction (through its blockchain-based infrastructure). It also acts as a multipurpose instrument that may fulfill a variety of roles, such as facilitating digital use cases or acting as a store of value. Understanding how to value such an instrument is complicated by these multiple roles because the relative valuation of one role cannot be disentangled from another role—a token is a ‘bundled’ good. In this work a general pricing model for cryptocurrency tokens is derived, based upon and extending the hedonic pricing framework of Rosen (1974) in a partial equilibrium framework. It is shown that individual roles (or characteristics) of a token may be priced by inverting in a special way the relationship between the token’s aggregate quantity and its provision of characteristics. Interaction between a monopolistic token seller and a representative buyer results in an equilibrium that clears both the aggregate token market and the characteristic market. Particular attention is given to the case in which a token possesses a security role, as this has been a focus of existing discussions regarding the regulation of the cryptocurrency market. JEL Codes: D46, C60.

Suggested Citation

  • Shorish, Jamsheed, 2018. "Hedonic Pricing of Cryptocurrency Tokens," SocArXiv wdg2v, Center for Open Science.
    • Handle: RePEc:osf:socarx:wdg2v
    DOI: 10.31219/osf.io/wdg2v
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    References listed on IDEAS

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    1. Mas-Colell, Andreu & Whinston, Michael D. & Green, Jerry R., 1995. "Microeconomic Theory," OUP Catalogue, Oxford University Press, number 9780195102680.
    2. Epple, Dennis, 1987. "Hedonic Prices and Implicit Markets: Estimating Demand and Supply Functions for Differentiated Products," Journal of Political Economy, University of Chicago Press, vol. 95(1), pages 59-80, February.
    3. John P. Conley, 2017. "Blockchain and the Economics of Crypto-tokens and Initial Coin Offerings," Vanderbilt University Department of Economics Working Papers 17-00008, Vanderbilt University Department of Economics.
    4. Aleksander Berentsen & Fabian Schär, 2018. "A Short Introduction to the World of Cryptocurrencies," Review, Federal Reserve Bank of St. Louis, vol. 100(1), pages 1-16.
    5. Rainer Böhme & Nicolas Christin & Benjamin Edelman & Tyler Moore, 2015. "Bitcoin: Economics, Technology, and Governance," Journal of Economic Perspectives, American Economic Association, vol. 29(2), pages 213-238, Spring.
    6. H. S. Houthakker, 1952. "Compensated Changes in Quantities and Qualities Consumed," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 19(3), pages 155-164.
    7. Rosen, Sherwin, 1974. "Hedonic Prices and Implicit Markets: Product Differentiation in Pure Competition," Journal of Political Economy, University of Chicago Press, vol. 82(1), pages 34-55, Jan.-Feb..
    8. Kelvin J. Lancaster, 1966. "A New Approach to Consumer Theory," Journal of Political Economy, University of Chicago Press, vol. 74(2), pages 132-132.
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    Cited by:

    1. Steven B. Caudill & Franklin G. Mixon, 2020. "Estimating Bargaining Power in Real Estate Pricing Models: Conceptual and Empirical Issues," JRFM, MDPI, vol. 13(5), pages 1-8, May.
    2. Jörg Osterrieder & Andrea Barletta, 2019. "Editorial on the Special Issue on Cryptocurrencies," Digital Finance, Springer, vol. 1(1), pages 1-4, November.
    3. Kamilla Marchewka-Bartkowiak & Karolina Anna Nowak & Michał Litwiński, 2022. "Digital valuation of personality using personal tokens," Electronic Markets, Springer;IIM University of St. Gallen, vol. 32(3), pages 1555-1576, September.
    4. Constandina Koki & Stefanos Leonardos & Georgios Piliouras, 2019. "A Peek into the Unobservable: Hidden States and Bayesian Inference for the Bitcoin and Ether Price Series," Papers 1909.10957, arXiv.org, revised Jul 2021.

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    More about this item

    JEL classification:

    • D46 - Microeconomics - - Market Structure, Pricing, and Design - - - Value Theory
    • C60 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - General

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