| Summary: | The promising cryptocurrency Bitcoin has attracted a lot of attention recently, but the high volatility of the Bitcoin price has so far been a barrier to widespread adoption. Given the way Bitcoin transactions work, users will be exposed to exchange rate risk even for short intraday horizons. This paper analyzes this risk, and compares it to more traditional assets, namely Gold and the Euro/USD exchange rate. To do this we make use of the recent literature on market risk measures for ultra-high-frequency data to construct an intraday Value at Risk measurement. This IVaR is based on a Monte Carlo simulation, where a log-ACD-ARMA-EGARCH model is used to describe the price movements. The results clearly indicate that for the intradaily horizon, Bitcoin is far more risky than Gold and Euro, which may challenge the applicability of Bitcoin as a medium of transaction. However in our opinion this risk is not large enough to outweigh the potential benefits that Bitcoin offers.
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