Cryptocurrencies – problems of the high-risk instrument definition


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Money is a widely accepted commodity, which enables us to determine the economic value of purchased goods and services and make payments. The dynamic development of technology and social expectations has expanded the spectrum of available types of payment instruments, including e-money and cryptocurrencies. Among dematerialized means of payment, cryptocurrencies began to play an important role due to their independence from central financial institutions and a highly effective form of saving money. The paper aims to present legal authorization, referring to cryptocurrencies, in countries of the European Union and prove that bitcoin is a high-riskу financial instrument. The methodology of the study was based on the review of available legal acts and literature (regarding the nature and function of money) and Value at Risk (VaR) model on the example of risk assessment of cryptocurrencies with respect to investing in the selected currencies. The outcomes showed several discrepancies in the definition of cryptocurrencies. They indicated that bitcoin, as one of the best-known cryptocurrencies, does not fulfill the functions of money formulated in economic theory (in relation to e-money). Besides, cryptocurrencies have been shown to be high-risky instruments.

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    • Figure 1. The number of daily confirmed Bitcoin transactions from 19th of August, 2019 to 3rd of February, 2020
    • Figure 2. The number of Bitcoin in circulation worldwide from 3rd quarter 2012 to 3rd quarter 2019 (in million)
    • Figure 3. The number of Bitcoin wallet holders as of February 5, 2020
    • Figure 4. Crypto ATM supported cryptocurrencies (worldwide)
    • Figure 5. Histogram of daily returns on the BitFinex stock market – selection based on the capitalization value as of December 15, 2017 (1,706 quotations in the period 2013–2017)
    • Figure 6. Correlation of the rate of return from Bitcoin in relation to the number of Bitcoins in circulation for the Bitfinex Stock Exchange (million, 2018)
    • Figure 7. Histogram of daily rates of return for USD (a) and EUR (b), respectively (2,275 observations in the period 2013–2017)
    • Table 1. Forms and types of cash, non-cash, and e-money
    • Table 2. Cryptocurrencies in the light of the selected central financial institutions
    • Table 3. Investment risk for selected exchanges and confidence levels with a period of 10 days
    • Table 4. Investment risk in traditional currencies expressed in terms of value at risk in relative terms over 10 days
    • Conceptualization
      Jacek Binda
    • Data curation
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    • Formal Analysis
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    • Investigation
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    • Methodology
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    • Project administration
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    • Resources
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    • Validation
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    • Visualization
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    • Writing – original draft
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    • Writing – review & editing
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