Working Paper: NBER ID: w29337
Authors: Clemens Graf von Luckner; Carmen M. Reinhart; Kenneth S. Rogoff
Abstract: This paper employs high frequency transactions data on the world’s oldest and most extensive centralized peer-to-peer Bitcoin market, which enables trade in the currencies of more than 135 countries. We develop an algorithm that allows, with high probability, the detection of “crypto vehicle transactions” in which crypto currency is used to move capital across borders or facilitate domestic transactions. In contrast to previous work which has used “on-chain” data, our approach enables one to investigate parts of the vastly larger pool of “off-chain” transactions. We find that, as a conservative lower bound, over 7 percent of the 45 million trades on the exchange we explore represent crypto vehicle transactions in which Bitcoin is used to make payment in fiat currency. Roughly 20 percent of these represent international capital flight/flows/remittances. Although our work cannot be used to put a price on cryptocurrencies, it provides the first systematic quantitative evidence that the transactional use of cryptocurrencies constitutes a fundamental component of their value, at least under the current regulatory regime.
Keywords: Bitcoin; International Capital Flows; Cryptocurrency; Payments; Remittances
JEL Codes: E42; E51; E58; F21; F24; F32; F38
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| bitcoin is used to make payments in fiat currency (E42) | crypto vehicle transactions (E42) |
| crypto vehicle transactions (E42) | significant component of bitcoin's value (E42) |
| crypto vehicle transactions (E42) | cross-border flows (F32) |
| bitcoin's transactional use (E42) | evidence against bitcoin as merely a speculative asset (G19) |
| 20 percent of crypto vehicle transactions (G13) | international capital flight or remittances (F24) |