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Global and local drivers of Bitcoin trading vis-à-vis fiat currencies

Author

Listed:
  • Di Casola, Paola
  • Habib, Maurizio Michael
  • Tercero-Lucas, David

Abstract

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 Classification: E42, F21, F24, F32, F38, G15, O33

Suggested Citation

  • Di Casola, Paola & Habib, Maurizio Michael & Tercero-Lucas, David, 2023. "Global and local drivers of Bitcoin trading vis-à-vis fiat currencies," Working Paper Series 2868, European Central Bank.
    • Handle: RePEc:ecb:ecbwps:20232868
    Note: 334027
    as

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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Bitcoin; digital currencies; financial development; peer-to-peer exchanges;
    All these keywords.

    JEL classification:

    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
    • 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, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes

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