I would recommend Josh Hendrickson's working paper from earlier this year,

https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4744828
(Short blog version here: https://www.economicforces.xyz/p/im-teaching-a-course-on-bitcoin-why).

In it, he explains that what mainstream economists SAY about bitcoin is not the same as what mainstream economics says.
Lots of credible commitment, Kocherlakota record-keeping, savings vehicles across time (Thomson/Klein), and debunking bubble or Ponzi claims (since those require inside/private information whereas Bitcoin is fully transparent).

Nice extracts:
"given the broad implications of mainstream monetary theory, this (long) discussion reveals that there is nothing about bitcoin that would obviously preclude it from serving as money"

"To my mind, all of these things make Bitcoin worthy of study. And yet, many of my
colleagues in the economics profession seem to disagree. A number of prominent voices in the profession enjoy publicly denouncing bitcoin as some sort of scam or an example of a classic asset bubble (many of them don’t understand asset bubbles either, so they can be forgiven for the confusion). This attitude seems to have created a view within the Bitcoin community that mainstream economics cannot help you to understand bitcoin"

Reading through the first cited paper (Aalborg et al. 2019), a couple of things come to mind immediately:

1. Mainstream economists have a shockingly poor understanding of bubbles (not shocking to me anymore, but you would be shocked, Dear Reader).
2. Mainstream economists don't realize that when they're doing econometric analysis it is at best an exercise in economic history.

The first point is relevant to the multiple concurring expert opinions that bitcoin is in a speculative bubble, back in 2015, just based on the amount of speculative investment. These people do not understand the role of entrepreneurship at all.

The second point means that economists are going to think the same factors drive Bitcoin trading volume in 2024 as in 2015.

I don't think these authors (or perhaps their reviewers) have much confidence in their methodology, because they avoid describing their findings as "causal" and opt for the safer language of "predicts". They deserve credit for having appropriate humility, but if they aren't making causal claims then I don't need to pick them apart.

As noted by Yermack (2015) and Ali et al. (2014), a fixed supply will lead to deflation which will, in turn, lead to high welfare destroying volatility. It will be a difficult task indeed to match the variation in demand. Ali et al. (2014) propose that a more flexible system is required to respond to varying demands. One way is to have an adjustable growth rate of currency supply and another is a decentralized voting mechanism. While some researchers predict a possibility of deflation, Lo and Wang (2014) throw light on a possible scenario of hyperinflation if the central bank chooses to oversupply currency. These possible scenarios of deflation and inflation are ruled out by Iwamura et al. (2014b) as they argue that fixed supply will only negatively impact the profitability of mining activity but not lead to a deflation-like situation.

This passage really demonstrates how confused modern macro is. Full disclosure: I didn't even peak at a single one of these articles.

In a monetary sense, "deflation" means decreasing supply, so it's directly contradictory to say a fixed money supply is deflationary. Of course, these are the kind of people who start talking about deflation whenever price inflation falls below 2%.

Now, it is true that bitcoin is actually deflationary (or at least it will be), because of lost/stranded bitcoin. The history of prices on the gold standard would seem to directly refute the claim about "welfare destroying volatility", as prices were so stable over the course of centuries that people thought of them as almost innate properties of goods. Compare that to today, when we're constantly shocked at how much prices have changed for everything.

Then, the comment about adjustable growth rates seems to come from someone who doesn't understand one of the core Misesian insights about money: any amount of money is enough to facilitate economic transactions, since money is divisible.

The author of the main article seems to have confused himself talking about hyperinflation and central bankers as though it's a counterpoint to the deflation concerns. It wouldn't be bitcoin that's hyperinflating, or if that's what those authors did say then they're morons. Bitcoin deflating and fiat inflating are completely disconnected phenomena.

The final point about fixed supply ultimately hurting miners' profits might be right. I've read people making it before. It depends on the purchasing power of bitcoin, which would stabilize at full adoption, while competition between miners drives fees down. Until then, mining profits could increase, decrease, or go sideways. Where that author is slightly wrong is in not recognizing that bitcoin really doesn't have a fixed supply.

Review of Athey's paper: #727081

I chose this one first because her name immediately caught my attention. I consider her a very good and credible economist, so I wanted to see what she had to say about Bitcoin.

Plus, the paper is a good starting point because it's about what gives Bitcoin its value.

Here's a passage from the introduction of the Ciaian and Rajcaniova (2016) paper.

Among the BitCoin features, which may facilitate its use as a currency, we have identified low transaction costs, high anonymity and privacy, learning spillover effects, infinite divisibility and no inflationary pressures.

Among the BitCoin features, which may impede its use as a currency include the absence of a legal tender attribute, difficulty to procure BitCoins, relatively high fixed costs of adoption, dependence on network externalities, absence of an institution enforcing dispute resolution, absence of BitCoin denominated credits, deflationary pressure, extremely high price volatility, and issues with cyber security.

I think that's a very fair set of factors, for 2016. Some of the impediments have improved tremendously in the past 8 years and they are all things that can improve (except for deflationary pressure, which is a fake impediment).

This Viglione paper looks interesting, but it isn't about bitcoin, per se. The author is taking advantage of bitcoin's properties as a globally available asset, to study how different institutions affect pricing. Bitcoin is ideal for this because it has such low transactions costs (like transportation, for instance) that it should be able to move across borders very easily.

What's important to realize about this paper is that it's about the differences in bitcoin prices across countries (price premia), not about bitcoin's actual purchasing power.

So, inflation being found to be insignificant, doesn't mean that bitcoin doesn't appreciate with inflation. It means that bitcoin doesn't appreciate disproportionately to inflation: i.e. the price premium doesn't increase with inflation.

Here's a nice excerpt from the conclusion of the paper:

Standard finance theory would suggest inter-market price differences exist because of microstructure characteristics like trading volume and bid-ask spreads. These factors do explain part of the price differences, but there is a missing piece to the puzzle that seems to be explained by proxies to a variety of economic freedom measures that cause large enough frictions to limit arbitrage.

The "mystery" being investigate is why there are cross-border price differences in an asset like Bitcoin, when the naive expectation would be that arbitrage would quickly resolve those differences.

Your wish is my command, but you should also have petitioned @SimpleStacker to take a looksie.

Something that I think the author as well as the cited authors are missing, and it's making the writing confusing, is that the price of bitcoin should be treated like an exchange rate.

They're talking about the supply side dynamics of bitcoin exchange rates, but seem to be confusing themselves by saying bitcoin has a precisely known supply. By that logic, gold and silver have almost perfectly known supplies, because we know how much is in the Earth/Solar System/Universe.

The supply of bitcoin, as it pertains to the exchange rates, is what the current holders are willing to exchange it for. That's much more complicated, since many of us simply will not exchange our bitcoin for dollars, while others are just day-trading, and everything in between.

Noted sir.
It looks like we can learn a lot from this.
I'll be reading it later on. Bookmarked.

Sorry Siggy, I lost steam on this and now I'm having trouble loading the paper. We'll just have to wait for @SimpleStacker's much more thoughtful reviews to come out.

I've been reading this one: https://www.sciencedirect.com/science/article/pii/S0304393212001110

It's a good one. It's not even about Bitcoin, but here are some excerpts:

Can currency be efficiently provided by competitive markets?

If suppliers of currency cannot commit to their future actions, then competition loses its bite. Once agents hold a particular currency, there may be an incentive for the issuer to inflate the price of goods in terms of this currency, thereby reducing its outstanding liabilities.

Cough cough government fiat printing cough

Trust may solve the time inconsistency problem in the supply of money.

With commitment, currency competition achieves the efficient (Friedman rule) monetary equilibrium, as Hayek (1976) envisioned.

With full commitment, Hayek's conjecture that efficient monetary equilibria can be achieved through currency competition is verified.

And, although the paper doesn't mention Bitcoin... we know that one of Bitcoin's key features is its commitment to the future monetary policy. It explains why ossification is important for Bitcoin. It also explains why shitcoins are shit, because there is no trust in the issuer's ability to commit to a future path.

Looks more and more like economic theory is supportive of Bitcoin... I'm looking forward to reviewing this :)

Evans (2014) refers to Bitcoin and other digital currencies as a long-lived asset of which the value at any point in time reflects its expectations about the future value and a change in this expectation can change the value further.

The study also claims that even though Bitcoin appears as highly volatile in the short-run, it will stabilize over a longer period of time.

That first chunk is really important and was the motivation for my post Reflections from the Nakamoto Simulator. The time to adoption, as well as the ultimate share of adoption, make a huge difference in present discounted value of bitcoin. I concluded that the current price should be roughly $1M, but someone who thinks adoption will be half as fast will come up with a much lower estimate.

The second chunk is a recurring conclusion that many authors reached and it is what we've seen with additional years of observation.

By the way, i've bookmarked this post so I can come back to it. I'll try to give a careful reading to as many of the papers as I can.

Here's a spectacularly stupid tidbit summarizing Baur and Dimplf (2017):

They declare Bitcoin as unfit to be used as currency since the high volatility feature adversely affects its store of the value property.

As though rapid, but volatile, appreciation is less desirable than smooth depreciation, for a store of value.