The scope of cryptocurrencies as a ‘fiat’ money: an evaluation of the ‘store of value’ function

Abstract

This study evaluates the potential of cryptocurrencies as a ‘fiat’ money to execute international payments. More than a hundred currencies are selected for this study, however based on market capitalization only 31 currencies are analysed in detail. Amongst three main functions of money, the ‘risk’ is mainly associated with the ‘store of value’ function, consequently, both standard deviation of returns and Value at Risk techniques are employed to calculate the magnitude of such risk for holding these currencies by using daily data till 3 February 2022. The dynamic root means square errors have been measured to explore the pattern of errors and forecastability of these currencies. Statistical analysis provides evidence that Bitcoin, Bitcoincash, and Ethereum are highly speculative while Binancecoin, and Litecoin are highly volatile. In contrast, Cronos, Hedera, and Tether are more stable and may be suitable for risk-averse investors alongside USD Coin which preserves optimum forecastability as well.