Bitcoin as a wage payment alternative
1. To briefly describe Bitcoin and its payment system
2. To ascertain its prevalence as a way to make salary payments
3. To study the investment implications from the context of a financial asset
4. To update on recent US legislation regarding Bitcoin’s use case and tax treatment
Data/Methods. Source data for this project comes from Coinbase, which is the leading Bitcoin wallet service in the US. Daily bid and ask prices for Bitcoin have been collected for the past year. Standard econometric analysis is undertaken to determine whether the price behaves as a random walk, to describe its statistical distribution, and to assess its level of risk to employees by developing confidence intervals.
Results/Expected Results. Preliminary analysis, which has been given to the US House of Representatives Small Business Committee on April 2, suggests that indeed Bitcoin price movements do represent a random walk. No correlation was found between its daily price return and that of ETFs for oil, S&P500, the dollar index, and interest rates. The distribution of Bitcoin price returns is not normal, t, lognormal, or uniform.
Discussion. Many Silicon Valley tech companies are exploring the use of Bitcoin as a way to compensate their employees in lieu of the traditional US$ paycheck. But if they do so at the request of the employee, then the employee base becomes of necessity “invested” into Bitcoin because they now hold a long position. These results show that Bitcoin is an excellent hedge for other, more traditional investments typically found in 401(k) plans. However, due to its extreme price volatility, it may not yet be suitable as a method of compensation.