The International Monetary Fund (IMF) has stated that Bitcoin is gradually becoming 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.
Recently, the decline in Bitcoin has been greatly influenced by the Iran-Israel conflict, triggering a reassessment of its value (anti-inflation? anti-war risk?) within the community. It is worth noting that the IMF recently released a report stating that Bitcoin is increasingly becoming a crucial channel for cross-border capital flows, replacing traditional banking systems, in the context of global financial instability.
The report points out that the use of Bitcoin in cross-border transactions is widespread globally, 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 as a percentage of GDP in various countries. The report found that Bitcoin inflows are particularly high in some Latin American countries, such as Argentina and Venezuela, which rank 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 with strict financial regulations and facing severe hyperinflation are turning to Bitcoin in order to freely transfer capital across borders. In these regions, Bitcoin has become a necessary financial tool for wealth preservation and access to the global market, rather than just a speculative investment. One of the authors of the report, Eugenio Cerutti, wrote:
However, the IMF 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 could 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 in order to harness the benefits of digital currencies while restraining risks, especially as a tool for economic freedom in countries with limited financial environments.
On the other hand, the report also points out 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 states that while on-chain Bitcoin transactions are often larger in scale than off-chain transactions, in areas with strict financial regulations or insufficient banking services, off-chain transactions, although smaller, are more common. These transactions are usually conducted through platforms such as LocalBitcoins, highlighting the role of Bitcoin in supporting financial activities that are restricted by traditional financial infrastructure.
Finally, the report emphasizes that due to methodological differences, capital flows and Bitcoin cross-border flows should not be directly compared. However, they infer:
In other words, in situations where global risk aversion increases or when seeking safe assets, people still rely more on traditional capital flows to react.
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: It can replace cash and promote inclusive finance, the timing should not be missed.
– IMF: Banning cryptocurrencies does not help mitigate risks, effective regulation should be implemented.