Working Paper: CEPR ID: DP17823
Authors: Raphael Auer; Giulio Cornelli; Sebastian Doerr; Jon Frost; Leonardo Gambacorta
Abstract: Prices for cryptocurrencies have undergone multiple boom-bust cycles, together with ongoing entry by retail investors. To investigate the drivers of crypto adoption, we assemble a novel database (made available with this paper) on retail use of crypto exchange apps at daily frequency for 95 countries over 2015–22. We show that a rising Bitcoin price is followed by the entry of new users. About 40% of these new users are men under 35, commonly identified as the most “risk-seeking” segment of the population. To establish a causal effect of prices on adoption, we exploit two exogenous shocks: the crackdown of Chinese authorities on crypto mining in mid-2021 and the social unrest in Kazakhstan in early 2022. During both episodes price changes have a significant effect on the entry of new users. Results from a PVAR model corroborate these findings. Overall, back of the envelope calculations suggest that around three-quarters of users have lost money on their Bitcoin investments.
Keywords: Bitcoin
JEL Codes: E42; E51; E58; F31; G28; L50; O32
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| crackdown on crypto mining in China (L72) | Bitcoin prices (G13) |
| social unrest in Kazakhstan (P39) | Bitcoin prices (G13) |
| Bitcoin prices (G13) | entry of new users (L26) |
| entry of new users (L26) | Bitcoin prices (G13) |