The International Monetary Fund (IMF) has stated that Bitcoin has gradually become a key channel for cross-border capital flows in the global financial instability, especially in high inflation countries such as Argentina and Venezuela, where Bitcoin trading activities are particularly active.
In recent days, the decline of Bitcoin has been deeply affected by the Iran-Israel conflict, triggering a reassessment 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 stating that Bitcoin has increasingly become a crucial channel for cross-border capital flows, replacing traditional banking systems, in the global financial instability.
The report points out that the use of Bitcoin in cross-border transactions is widespread worldwide, both on-chain and off-chain, and the level of activity in various regions is relatively high. According to data from Chainalysis and LocalBitcoins, Figures 1 and 2 below respectively show the proportion of Bitcoin inflows to GDP in various countries. The report found that Bitcoin inflows in some Latin American countries, such as Argentina and Venezuela, are particularly high compared to other countries, with both countries ranking highest in the two data sources. In addition, relatively large inflows have also been observed in several countries in Africa, Asia, and Eastern Europe.
Figure 1: [insert image here]
Figure 2: [insert image here]
The report concludes that residents of countries with strict financial regulations and facing severe inflation 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 accessing the global market, rather than just a speculative investment. One of the authors of the report, Eugenio Cerutti, wrote:
However, the IMF’s report also warns that the widespread use of Bitcoin for cross-border flows may bring potential risks due to the lack of regulation and the anonymity of cryptocurrencies, which may make it difficult for regulatory agencies to monitor and control financial transactions to prevent illegal activities such as money laundering.
Therefore, the IMF calls for the establishment of an international cooperation and regulatory framework that covers the unique aspects of digital assets. This framework aims to curb risks while leveraging the benefits of digital currencies, especially as tools for economic freedom in countries with limited financial environments.
On the other hand, the report also states 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 (such as fear and greed indices), rather than being sensitive to economic indicators such as monetary policy or exchange rate fluctuations, like typical foreign investments.
Furthermore, the report points out that on-chain Bitcoin transactions are often larger than off-chain transactions, but in regions with strict financial regulations or inadequate banking services, off-chain transactions, although smaller, are more common. These transactions are usually conducted through platforms like LocalBitcoins, highlighting the role of Bitcoin in supporting financial activities that are limited by traditional financial infrastructure.
Lastly, the report emphasizes that due to methodological differences, capital flows and cross-border Bitcoin flows should not be directly compared, but they infer:
In other words, in situations where global risk aversion increases or the search for safe assets intensifies, people still rely more on traditional capital flows to respond.
Related reports:
– IMF President: Bitcoin is still far from being able to compete with the US dollar, Crypto is an asset rather than a currency.
– IMF President praises CBDC: can replace cash, promote inclusive finance, and the timing is crucial.
– IMF: Banning cryptocurrencies does not help mitigate risks, effective regulation should be implemented.