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David Tercero-Lucas

8 November 2023
We analyse the drivers of Bitcoin transactions against 44 fiat currencies in the largest peer-to-peer crypto exchanges. Momentum and volatility in the cryptoasset market, as well as volatility and liquidity in global financial markets do matter for Bitcoin trading. There is suggestive evidence of a global crypto cycle driven by speculative motives. However, in emerging and developing economies (EMDEs), Bitcoin seems to offer also transactional benefits, since trading increases when the value of the domestic currency is unstable. Proxies of banking depth and digitalisation are negatively correlated with the currency loadings on the global factor, indicating that crypto-assets may offer a speculative alternative to traditional finance when this is not available, especially in EMDEs where the share of younger risk-prone population is higher. Our results clearly point to potential financial stability risks from cryptoisation in EMDEs with low levels of financial development and unstable fiat currencies.
JEL Code
E42 : Macroeconomics and Monetary Economics→Money and Interest Rates→Monetary Systems, Standards, Regimes, Government and the Monetary System, Payment Systems
F21 : International Economics→International Factor Movements and International Business→International Investment, Long-Term Capital Movements
F24 : International Economics→International Factor Movements and International Business→Remittances
F32 : International Economics→International Finance→Current Account Adjustment, Short-Term Capital Movements
F38 : International Economics→International Finance→International Financial Policy: Financial Transactions Tax; Capital Controls
G15 : Financial Economics→General Financial Markets→International Financial Markets
O33 : Economic Development, Technological Change, and Growth→Technological Change, Research and Development, Intellectual Property Rights→Technological Change: Choices and Consequences, Diffusion Processes