Image from the IMF blog.

The International Monetary Fund (IMF) has published a 43-page paper examining the role of Bitcoin in cross-border transactions. In addition to some interesting results, it is particularly impressive because of its methodology – and shows that the IMF has changed its view of Bitcoin.

The paper “A Primer on Bitcoin Cross-Border Flows: Measurement and Drivers” doesn’t really live up to the clichés people tend to have about the IMF and its relationship to Bitcoin. It is not written in a hostile and negative manner, but in a neutral and unconditional manner; Three economists who have long been researching many topics for the IMF are trying to find out more about cross-border Bitcoin payments in the relatively technical paper.

The tricky methodology

The question is not exactly easy, the authors emphasize: although access to the Bitcoin network and all transaction data on the blockchain is public, due to the high degree of pseudonymity, the individual users and thus the location of the payments cannot be easily determined.

To shed light on the darkness, the researchers combine three approaches:

  1. They determine the payment flows between exchanges from the onchain data. The website Wallet Explorer, which lists many Bitcoin addresses from exchanges, helps with this. This allowed the researchers to sort 1.6 million transactions across 80 exchanges. They combine this data with other data about the locations of the stock exchanges.
  2. They use data from blockchain analyst Chainalysis on cross-border onchain payments. These dates range from March 2019 to March 2023.
  3. They access a data set of transactions from the international P2P exchange LocalBitcoins. The dataset includes 40 million transactions in 136 currencies from March 2017 to February 2023. From another study, they adopted a probabilistic algorithm that identifies the cross-border transactions in this dataset.

These three approaches complement each other, the researchers explain, as they capture different types of flows and market participants. For example, the onchain transactions examined, with an average of 13.34 Bitcoin, are much larger than the LocalBitcoins transactions with only 0.0178 Bitcoin. Obviously they serve completely different purposes.

None of the three methods is completely credible; each has its advantages and disadvantages. Overall, the researchers hope that they will provide a useful overall picture.

Basic results

One of the study’s core metrics is incoming Bitcoin flows as a share of a country’s gross national product (GDP). The higher, the greater their relative importance. It is striking that this value is particularly high in countries in Latin America (such as Argentina or Venezuela) as well as in some African, Asian and European countries.

The top countries, depending on the data set, are Venezuela, Moldova, Ukraine, Georgia, Belarus, Nigeria, Kenya and Colombia. The share of Bitcoin flows is lowest in countries with traditionally strong financial systems, such as the USA, Switzerland, Japan, Canada or Hong Kong.

However, the researchers’ goal is not only to measure cross-border Bitcoin payment flows, but also to compare them with other capital flows. What makes Bitcoin flows special?

To do this, they compare the Bitcoin flows with the portfolio flows according to EPFR Global (EPFR) and the Institute of International Finance (IIF) – both measure global inflows into investment funds using different methods.

It is noticeable that Bitcoin flows are greatest where other capital flows remain low, while, conversely, countries with relatively large other capital flows only have small Bitcoin flows. The researchers conclude from this that Bitcoin has not yet replaced existing capital flows, but rather comes into play where they fail.

Subtle but important differences

The researchers then resort to a comparative metric that is somewhat difficult to understand: the “broad dollar.”

Established capital flows according to EPFR and IIF behave as expected in this respect: as risk aversion increases and the dollar strengthens, portfolio capital flows decline. Actually not surprising.

This correlation can be found – albeit weakly – in the data from Chainalysis, but not in those from LocalBitcoins. This suggests that cross-border payments from LocalBitcoins fall less into the pattern of investments, such as onchain payments to exchanges, and are more likely to be remittance payments from guest workers or to circumvent capital controls.

This difference is probably the most interesting finding of the paper. For the researchers, it is more about basic methodological research – they are developing a procedure to identify cross-border Bitcoin payments and compare them with other cross-border payment flows.

Bitcoin is therefore less of a nuisance for the IMF, as is usual – but rather a relevant and worth investigating factor in the global financial structure. And perhaps this change in perspective is the most exciting insight from the paper.


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