The International Monetary Fund (IMF) has stated that Bitcoin is gradually becoming a key channel for cross-border capital flows, particularly in countries with high inflation such as Argentina and Venezuela, amid global financial instability. The recent decline in Bitcoin prices, influenced by the conflict between Iran and Israel, has prompted a reevaluation of its value (as a hedge against inflation or war risk) within the community. It is worth noting that the IMF recently released a report indicating that Bitcoin is increasingly replacing traditional banking systems as a crucial conduit for cross-border capital flows, in the context of global financial instability.
The report highlights the widespread use of Bitcoin in cross-border transactions worldwide, both on-chain and off-chain, with relatively high levels of activity in various regions. According to data from Chainalysis and LocalBitcoins, Figures 1 and 2 below show the proportion of Bitcoin inflows to GDP in different countries. The report found that Bitcoin inflows were particularly high in some Latin American countries, such as Argentina and Venezuela, ranking highest in both data sources.
Additionally, relatively large inflows have been observed in several countries in Africa, Asia, and Eastern Europe.
Figure 1
Figure 2
The report concludes that residents of countries facing strict financial regulations and severe hyperinflation are turning to Bitcoin to transfer capital across borders more freely. In these regions, Bitcoin has become a necessary financial tool for wealth preservation and access to global markets, rather than just a speculative investment. One of the authors of the report, Eugenio Cerutti, writes:
However, the IMF report also warns of potential risks associated with the widespread use of Bitcoin for cross-border transactions, mainly due to the lack of regulation and the anonymity of cryptocurrencies. These factors may complicate the efforts of regulatory institutions to monitor and control financial transactions to prevent illegal activities such as money laundering.
Therefore, the IMF calls for the establishment of international cooperation and regulatory frameworks that cover the unique aspects of digital assets. This would allow for the suppression of risks while leveraging the benefits of digital currencies, particularly as tools for economic freedom in countries with limited financial environments.
On the other hand, the report also highlights that Bitcoin transactions exhibit unique characteristics compared to traditional capital flows. These transactions show higher correlations with intrinsic factors of cryptocurrencies, such as market volatility and user sentiment indices (e.g. fear and greed indices), rather than being sensitive to typical economic indicators such as monetary policy or exchange rate fluctuations.
Furthermore, the report points out that on-chain Bitcoin transactions are often larger in scale than off-chain transactions. However, in regions with strict financial regulations or limited banking services, off-chain transactions, although smaller, are more common. These transactions usually take place through platforms like LocalBitcoins, highlighting the role of Bitcoin in supporting financial activities constrained by traditional financial infrastructure.
Finally, the report emphasizes that due to methodological differences, capital flows and cross-border Bitcoin flows should not be directly compared. However, they infer:
In other words, in situations where global risk aversion increases or safe assets are sought, people still rely more on traditional capital flows to react.
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