Document Type

Working Paper

Abstract

Using proprietary data from a dominant crypto exchange in India and the coun try’s Household Inflation Expectations Survey, we document a significant pos itive correlation between inflation expectations and individual cryptocurrency purchases. Furthermore, inflation expectations prompt more new investors, par ticularly male investors, to begin purchasing cryptocurrencies. Token-wise, this effect is predominantly concentrated in Bitcoin (BTC) and Tether (USDT). The effect also has causal interpretations, as confirmed by using idiosyncratic shocks in current perceived inflation as an instrumental variable for long-term inflation expectations. We also discover that the relationship between inflation expecta tions and cryptocurrency investment is not driven by speculative expected returns from cryptocurrencies. Our findings suggest that certain cryptocurrencies have already been perceived by households as inflation hedges.

Publication Date

1-1-2024

Publisher

Indian Institute of Management Bangalore

Relation

IIMB Working Paper-695

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