DeFiying gravity? An empirical analysis of cross-border Bitcoin, Ether and stablecoin flows

Summary

Focus

The policy relevance of cross-border crypto flows has grown as regulators grapple with potential financial stability challenges and the integration of digital assets into mainstream finance. How do speculative motives, global funding conditions and transactional needs such as for remittances shape these flows? Are there important differences between native cryptoassets (eg Bitcoin or Ether) and stablecoins (eg Tether or USD Coin), as each category may respond to distinct economic and financial drivers?

Contribution

We delve into the drivers behind cross-border crypto flows across 184 countries from 2017 to mid-2024, using a gravity framework to dissect the forces at work. We introduce a novel, comprehensive data set that captures bilateral cross-border flows of both native cryptoassets and stablecoins. We identify distinct drivers for native crypto assets and for stablecoins, thereby highlighting both their speculative and transactional uses. We also draw comparisons with traditional cross-border flows, such as remittances and interbank credit.

Findings

Geographic distance and linguistic barriers have a much smaller effect on crypto transactions than on traditional financial flows. Global factors – such as heightened market volatility and widening credit spreads – emerge as significant determinants for native cryptoassets. Stablecoins exhibit stronger links to remittance costs and transactional imperatives, especially in emerging market and developing economies where traditional financial channels are costly. Moreover, capital flow management measures appear largely ineffective in curbing these digital transactions, with evidence that transactions for some cryptoassets even rise in response to the introduction of these measures. The findings highlight the dual role of cryptoassets as speculative investments and transactional tools, emphasising the need for further research to assess their impact on financial inclusion and economic stability.

Abstract

We investigate trends and drivers of cross-border flows of the two major native cryptoassets (Bitcoin and Ether) and the two major asset-backed stablecoins (Tether and USD Coin) between 184 countries from 2017 to 2024. These flows are substantial, peaking at around USD 2.6 trillion in 2021, with stablecoins accounting for close to half the volume. The unique bilateral data allow us to estimate the drivers of these flows in a gravity framework, and how they differ across different types of crypto assets. Our findings highlight speculative motives and global funding conditions as key drivers of native crypto asset flows. Transactional motives play a significant role in cross-border flows for stablecoins and low-value Bitcoin transactions, where we further find a strong association with higher costs of traditional remittances. Geographic barriers play a diminished role compared to traditional financial flows, and capital flow management measures appear ineffective.

JEL classification: F24, F32, F38, G15, G23

Keywords: cryptocurrency, payments, cross-border flows, blockchain, decentralised finance, capital flow management, Bitcoin, Ether, USD Coin, Tether, stablecoins, remittances