Global crypto flows: Macro shifts and payments are key drivers
A Bank of Canada working paper identifies key motives behind cross-border cryptocurrency flows, including responses to macro-financial developments and international payments. The study, covering 162 countries from 2020 to 2023, also extends its findings to major stablecoins.
Mapping global crypto movements
The paper documents a rapid increase in global cross-border Bitcoin flows, surging from $40 billion USD in mid-2020 to a peak of $160 billion USD by mid-2021.
While these flows average 1.6% of quarterly GDP across the sample, they reached up to 14% in some Eastern European, Latin American, and Asian countries.
Net outflows typically originate from emerging markets, with advanced economies recording net inflows.
The study finds limited evidence that Bitcoin flows mirror traditional capital flows, suggesting distinct drivers.
However, for several nations, Bitcoin flow shares were substantial, reaching up to 61% of portfolio investment flows, indicating a notable alternative.
This analysis relies on a comprehensive Chainalysis dataset covering 162 countries from 2020Q3 to 2023Q3, including Bitcoin and four major stablecoins.
Beyond speculation: Diverse motives
Seven distinct motives drive cross-border cryptocurrency transactions, with adjusting to unfavorable macro-financial developments and facilitating international payments/remittances being the most significant.
Other identified drivers include weak institutions, underdeveloped financial systems, and the potential circumvention of capital controls or sanctions.
Policy implications are dual: the payments and remittances motive, leveraging cryptocurrencies' cost structure, appears beneficial and worthy of support.
Conversely, the potential use for illicit activities like sanction circumvention may necessitate closer monitoring and tighter regulation.
A COVID-19 event study reinforces these primary motives.
The findings for Bitcoin also extend to major stablecoins, enriching the information for policymakers.
Unpacking crypto's true utility
This research offers crucial empirical evidence on cryptocurrencies' real-world utility beyond speculation.
It reveals a dual nature: beneficial for remittances due to lower costs, yet problematic for illicit activities like sanction circumvention, creating a policy dilemma.
The study's robust quantification of these drivers provides a stronger foundation for future regulatory discussions.