Recently, crypto-currencies such as Bitcoin, Ethereum or Dogecoin have become an online phenomenon. They have also caught the interest of the investment community: the value of a Bitcoin went from $0.01 in 2010 to currently around $56,000 in October 2021. The number of Bitcoins is growing according to a known, publicly specified algorithm. 1. Find out from the Internet how many Bitcoins there will be eventually. 2. Using the Quantity Theory of Money, what do you predict for the US price level under a Bitcoin regime if the maximum number of possible Bitcoins were to cover nearly the entire economic activity in the US today? Assume that the velocity of Bitcoins is 2. 3. What is the exchange rate between Bitcoins and USD under the assumptions of 2.? Assume that the velocity of money is 2 for the USD, that the USD M2 is at its current stock, and that the real exchange rate is 1. 4. What happens to the price level under a Bitcoin regime with the maximum number of Bitcoins in circulation if the US economy grows in real terms? 5. Can there be no inflation under a Bitcoin regime once the supply of Bitcoins has reached its maximum? 6. Currently, the value of a Bitcoin in USD is about $56,000. Would you invest into Bitcoins and why? Would anyone holding Bitcoins use them to do transactions under your conclusions of 3. and why? Recently, crypto-currencies such as Bitcoin, Ethereum or Dogecoin have become an online phenomenon. They have also caught the interest of the investment community: the value of a Bitcoin went from $0.01 in 2010 to currently around $56,000 in October 2021. The number of Bitcoins is growing according to a known, publicly specified algorithm. 1. Find out from the Internet how many Bitcoins there will be eventually. 2. Using the Quantity Theory of Money, what do you predict for the US price level under a Bitcoin regime if the maximum number of possible Bitcoins were to cover nearly the entire economic activity in the US today? Assume that the velocity of Bitcoins is 2. 3. What is the exchange rate between Bitcoins and USD under the assumptions of 2.? Assume that the velocity of money is 2 for the USD, that the USD M2 is at its current stock, and that the real exchange rate is 1. 4. What happens to the price level under a Bitcoin regime with the maximum number of Bitcoins in circulation if the US economy grows in real terms? 5. Can there be no inflation under a Bitcoin regime once the supply of Bitcoins has reached its maximum? 6. Currently, the value of a Bitcoin in USD is about $56,000. Would you invest into Bitcoins and why? Would anyone holding Bitcoins use them to do transactions under your conclusions of 3. and why
