Price Fluctuations and the Use of Bitcoin: An Empirical Inquiry

This paper empirically examines Bitcoin – one of the latest innovations in electronic finance. By focusing on price formation we discover that Bitcoin returns are driven primarily by its popularity and the transactional needs of its users. We also conducted a survey of merchants who have adopted this technology and model the share of sales paid for with this alternative currency. Particularly, we look at how company-specific characteristics, use of other payment methods and customers’ knowledge about Bitcoin interact with the proportion of sales attributed. The results presented here allow us to better understand the economic ramifications of this innovation.