Shadow Exchange Rates – Changing the Winds with Headwinds and Tailwinds

This paper summarizes the arguments and counterarguments within the academic discussion on the issue of double exchange rates – official exchange rates and unofficial exchange rates – produced by the cryptocurrency bitcoin (BTC). The policy conclusion of this research is that cryptocurrency exchange rates ought to be monitored by authorized organizations because of unsustainable price volatility. The relevance of the decision of this scientific problem is that some unofficial exchange rates are likely to have higher volatility caused by BTC's bubble and burst than by the official exchange rate. Methodological tools of the research methods are the event window study which is to measure the abnormal response of an asset price. Through investors' psychology, I analyze the bubble and burst mechanism of BTC. The big factor ignored by cryptocurrency supporters is that people do need to use “fiat currencies” – the significant issue is that the coins are not issued or managed by any governments, although “the progress of fintech” is a welcome innovation. Overall, the paper presents the finding of experts and empirical results, which can help build a more sustainable financial market. The recommendations of this paper can be useful for policy makers, regulators, and academics.