Bitcoin, corruption and economic freedom

Abstract

Purpose

The purpose of this study is to test whether the price traders are prepared to pay for Bitcoin, over the market price, is related to a country’s level of corruption and lack of economic freedom, during Bitcoin’s most turbulent period, 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 changes in the Economic Uncertainty Index.

Findings

On testing Bitcoin premiums across 17 countries, it is found that 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 increases so does the premium paid for Bitcoin, and as the level of economic freedom declines, the premium increases. This relationship holds during very different market conditions: the increasing Bitcoin price from April to September 2017; the rise and fall in Bitcoin prices from October 2017 to March 2018; the declining market price from April to September 2018; and in December 2017 when Bitcoin reached over US$19,000.

Originality/value

Rather than focussing on 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 measures can hide the size of the monetary response. By focussing on the monetary impact, the differences between countries become more apparent.

Citation

Johnson, J. (2020), "Bitcoin, corruption and economic freedom", Journal of Financial Crime, Vol. 27 No. 1, pp. 58-66. https://doi.org/10.1108/JFC-11-2018-0122