Bitcoin, corruption and economic freedom
| Pages | 58-66 |
| DOI | https://doi.org/10.1108/JFC-11-2018-0122 |
| Date | 22 January 2020 |
| Published date | 22 January 2020 |
| Author | Jackie Johnson |
| Subject Matter | Financial risk/company failure,Financial crime,Accounting & Finance |
Bitcoin, corruption and
economic freedom
Jackie Johnson
Independent Research, Bull Creek, Australia
Abstract
Purpose –The purpose of this studyis to test whetherthe price traders are prepared to pay for Bitcoin, over
the market price, is related to a country’s levelof corruption and lack of economic freedom, during Bitcoin’s
most turbulentperiod, 2017-2018.
Design/methodology/approach –Bitcoin premiums (the excess over the market price) are calculated
for 17 countries from April 2017 to September 2018, using daily weighted Bitcoin prices compared to the
market price and testing against the Corruption Perception Index, the Index of Economic Freedom and
changesin the EconomicUncertainty Index.
Findings –On testing Bitcoinpremiums across 17 countries, it is foundthat the price paid for Bitcoin above
the market price goes hand-in-hand with the level of corruption and decline in economic freedom. As
corruption increasesso does the premium paid for Bitcoin, and as the level of economicfreedom declines, the
premium increases. This relationship holds during very different market conditions: the increasing Bitcoin
price from April to September2017; the rise and fall in Bitcoin prices from October 2017 to March2018; the
declining market price from April to September 2018; and in December 2017 when Bitcoin reachedover US
$19,000.
Originality/value –Rather than focussingon daily returns which measure changes from day to day, this
research uses all transactions during the day focussing on an intra-day consensus price measured in local
currency.With such large price increases, percentage measurescan hide the size of the monetary response. By
focussingon the monetary impact, the differences between countries becomemore apparent.
Keywords Corruption, Bitcoin, Economic freedom, Bitcoin exchanges, Premiums
Paper type Research paper
1. Introduction
In 2008, a paper written by Satoshi Nakamoto (2008) proposed an electronic cash system,
Bitcoin, which would allow online payments between the parties concerned, without the
need for a financial institutionto act as an intermediary. Digital signatures would be used to
verify ownership, and although details of each transaction would be kept in the public
domain, through Bitcoin’s blockchain technology, users’identities would not be disclosed.
Transactions wouldin effect be anonymous.
Since 2008, interest in Bitcoin has grown significantly becoming more prominent in the
public eye, fuelled by: the November 2013 seizure of Silk Road’s bitcoins by the US
Government; the spectacular rise and fall of the Bitcoin Exchange Mt. Gox which filed for
bankruptcy on February 28, 2014after a theft of 744,000 bitcoins; and Bitcoin’s phenomenal
price rise in December 2017 when it reached US$19,000. Both Bitcoin’s price and trading
activity declinein 2018 and by November it is trading under US$4,000.
Bitcoin trades around the world, across exchanges and peer-to-peer, in a vast array of
currencies at very different prices. Individual exchanges have their own characteristics
which impact their clientele, which in turn impacts the price their traders are prepared to
No funding was received for this project.
JFC
27,1
58
Journalof Financial Crime
Vol.27 No. 1, 2020
pp. 58-66
© Emerald Publishing Limited
1359-0790
DOI 10.1108/JFC-11-2018-0122
The current issue and full text archive of this journal is available on Emerald Insight at:
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