Honors Theses and Capstones

Date of Award

Spring 2018

Project Type

Senior Honors Thesis

College or School

PAUL

Department

Accounting and Finance

Program or Major

Business Administration

Degree Name

Bachelor of Science

First Advisor

Stephan Shipe

Abstract

The topic of cryptocurrencies has been on the forefront of investors’ minds as they have seen ridiculous returns from the volatile swings in price. Its value highly debated because the asset is not backed by a hard asset. If we look back at the beginning of our country, we see how each state had its own currency and the difficulties that users faced around who would accept that as legal tender. The birth of a federal currency was accepted because it served as a medium of exchange and was backed by gold through the U.S. government. The final evolution of the U.S. dollar was moving away from the gold standard to a fiat currency backed only by the confidence in the U.S. government’s word. Today, we live in a globalized world where there is significant communication between countries around the globe that it seems that we have almost come to the same crossing point that our country saw when it first adopted a federal currency. For cryptocurrencies to be adopted as the standard around the world, we must first discuss why they would carry the same value as the current federal currencies that are already set in place and why there may be a shift.

The paper will be investigating the reasons that cryptocurrencies may gain popularity first as a flight to quality asset before a widespread adoption throughout business and individuals. This carries great importance as the adoption of cryptocurrencies would mark a new era of untested, autonomous free markets around the globe. We will look at current debt levels, different asset class correlations, perceived stable currencies, and if cryptocurrencies can act as an alternative asset. The current idea of flight to quality assets is moving away from more risky assets like equities or unstable currencies to fixed income or stable currencies like the USD but what if investors lose faith in some of the U.S. denominated assets?

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