Cryptocurrencies are, collectively, the fastest growing asset class. In comparison with other assets such as government-issued currencies, gold, real estate, equities, and debt obligations, the aggregate market value of cryptocurrencies remains very small. However, the rapid growth in the market value of this new asset class compels government agencies to develop appropriate regulations to protect consumers, tax, incentivize or disincentivize usage, etc.
A key difficulty in developing these regulations is determining whether cryptocurrencies are primarily:
- assets (stores of value),
- currencies (instruments of exchange), or
- purely speculative instruments (akin to poker chips).
All three classifications are represented in the regulatory regimes of different governments. The original goal of the creator(s) of the first cryptocurrency, Bitcoin, was to establish a new form of currency. United States regulations, which are still under development and are not entirely consistent, generally treat cryptocurrencies as assets. Popular opinion holds that pure speculation currently dominates cryptocurrency usage.
Predicting the trends in each of these types of usage can help guide the development of appropriate government regulation. The goal of this exercise is to model cryptocurrency useage as a currency on the basis of various crypto market measures. So for example, if a government finds value (or not) in facilitating the use of crypto as a form of currency, regulations could be developed to influence these factors. Developers of new cryptocurrencies could similarly influence these factors by design.
Since the world-wide market capitalization of Bitcoin is currently 75% of the entire cryptocurrency market, Bitcoin data will be analyzed as a proxy for all cryptocurrency usage.