January 25, 2017 Reading Time: 2 minutes

A few years ago, Cyprus announced it would accept a €10 billion bailout package on condition of imposing a one-time levy on bank deposits. The initial agreement, which included a 6.75 percent levy on deposit balances less than 100,000 euros and a 9.9 percent levy on deposit balances in excess of 100,000 euros, was largely unexpected. A BBC headline described “Shock in Cyprus as savers face bailout levy.” Others feared it “could be setting an entirely disastrous precedent for the entire European banking system.” (A modified version of the plan ultimately saw no levies issued on deposit balances less than 100,000 euros. Balances in excess of 100,000 euros were converted at just 37.5 cents on the euro.) In a paper forthcoming at the Quarterly Review of Economics and Finance, Alex Salter and I consider the extent to which the Cyprus bailout announcement encouraged some to reconsider bitcoin.

The basic idea is straightforward. Deposits are typically thought to be pretty safe. With the bailout announcement, those in Cyprus learned that their deposits were not as safe as they had expected. To the extent that it set a precedent for other countries, depositors elsewhere might have reached similar conclusions. With new information about the riskiness of traditional deposits, depositors are more likely to move to alternatives. Alternatives, that is, like bitcoin. We were not the first to suggest the bailout announcement could tip the balance toward bitcoin for some depositors. Tero Kuittinen observed bitcoin app downloads soaring in Spain following the announcement and connected the dots:

Bitcoin Gold shot up in the Spanish iPhone Finance category from 498 to 72, and another app called Bitcoin Ticker zoomed from 526 to 52 in just one day. A leading service called Bitcoin App jumped from 194 to 151 between Friday and Sunday as Spaniards brooded over the Cyprus crisis.

But Kuittinen offered nothing like a systematic analysis of the question. To consider Kuittinen’s idea, we collected download rank data for all fifteen bitcoin apps available at the time of the announcement for ten countries (Cyprus, Portugal, Ireland, Italy, Greece, Spain, France, Germany, United Kingdom, and United States) over the seven-day periods before and after the bailout announcement. We then use an established technique to estimate an index of downloads for each country considered. In general, we find that:

  1. Bitcoin app downloads increased following the announcement
  2. The observed effect is not especially pronounced in those euro area countries thought to have had troubled banking systems at the time.
  3. The observed effect is largely driven by downloads in Cyprus, Italy, Spain, and the US.


Table 1. Average Download Index of Bitcoin Apps, by Country To see the magnitude of the shock, consider the results presented in Table 1. We estimate that bitcoin app downloads increased across the board by nearly 11 percent following the announcement. The estimated effect was largest in Spain, where bitcoin app downloads increased by roughly 45 percent. Italy saw downloads increase by nearly 18 percent following the bailout announcement. These results suggest that at least some depositors are willing to consider alternatives when they lose faith in the banking system.

William J. Luther

William J. Luther

William J. Luther is the Director of AIER’s Sound Money Project and an Associate Professor of Economics at Florida Atlantic University. His research focuses primarily on questions of currency acceptance. He has published articles in leading scholarly journals, including Journal of Economic Behavior & Organization, Economic Inquiry, Journal of Institutional Economics, Public Choice, and Quarterly Review of Economics and Finance. His popular writings have appeared in The Economist, Forbes, and U.S. News & World Report. His work has been featured by major media outlets, including NPR, Wall Street Journal, The Guardian, TIME Magazine, National Review, Fox Nation, and VICE News.

Luther earned his M.A. and Ph.D. in Economics at George Mason University and his B.A. in Economics at Capital University. He was an AIER Summer Fellowship Program participant in 2010 and 2011.


Selected Publications

Cash, Crime, and Cryptocurrencies.” Co-authored with Joshua R. Hendrickson. The Quarterly Review of Economics and Finance (Forthcoming).

Central Bank Independence and the Federal Reserve’s New Operating Regime.” Co-authored with Jerry L. Jordan. Quarterly Review of Economics and Finance (May 2022).

The Federal Reserve’s Response to the COVID-19 Contraction: An Initial Appraisal.” Co-authored with Nicolas Cachanosky, Bryan Cutsinger, Thomas L. Hogan, and Alexander W. Salter. Southern Economic Journal (March 2021).

Is Bitcoin Money? And What That Means.”Co-authored with Peter K. Hazlett. Quarterly Review of Economics and Finance (August 2020).

Is Bitcoin a Decentralized Payment Mechanism?” Co-authored with Sean Stein Smith. Journal of Institutional Economics (March 2020).

Endogenous Matching and Money with Random Consumption Preferences.” Co-authored with Thomas L. Hogan. B.E. Journal of Theoretical Economics (June 2019).

Adaptation and Central Banking.” Co-authored with Alexander W. Salter. Public Choice (January 2019).

Getting Off the Ground: The Case of Bitcoin.Journal of Institutional Economics (2019).

Banning Bitcoin.” Co-authored with Joshua R. Hendrickson. Journal of Economic Behavior & Organization (2017).

Bitcoin and the Bailout.” Co-authored with Alexander W. Salter. Quarterly Review of Economics and Finance (2017).

The Political Economy of Bitcoin.” Co-authored with Joshua R. Hendrickson and Thomas L. Hogan. Economic Inquiry (2016).

Cryptocurrencies, Network Effects, and Switching Costs.Contemporary Economic Policy (2016).

Positively Valued Fiat Money after the Sovereign Disappears: The Case of Somalia.” Co-authored with Lawrence H. White. Review of Behavioral Economics (2016).

The Monetary Mechanism of Stateless Somalia.Public Choice (2015).


Books by William J. Luther

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