IMF: Bitcoin is a necessary tool to preserve wealth in times of financial uncertainty Assad Jafri Just 1 hour earlier * Read 2 minutes
IMF reports that residents in countries with strict financial regulation are increasingly turning to Bitcoin as a way to transfer capital more easily across borders.
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Updated: Apr. 19, 2024 at 1:57 am UTC
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BitcoinBTCAccording to the International Monetary Fund’s (IMF) latest report, ), is becoming a more important channel of cross-border flows in times of global financial uncertainty.
This report, titled “A Primer for Bitcoin Cross-Border Transfers”, sheds some light on the way in which Bitcoin’s decentralized nature is used to circumvent traditional banking systems.
Financial tool
IMF reports that residents in countries with strict financial regulation are increasingly turning to Bitcoin as a way to transfer capital more easily across borders.
This report highlighted the significant volumes of transactions coming from Argentina and Venezuela where residents face hyperinflation as well as strict financial controls.
Bitcoin is a popular currency in these areas. Financial tool For preserving wealth, and for accessing the global market.
Eugenio Ceutti, one of the authors, wrote that:
Bitcoin transactions allow individuals from countries with high inflation to maintain their savings, and take part in global trade at terms not possible in their own currencies.
The IMF also warned against potential risks associated to the use of Bitcoin in cross-border transactions.
Cryptocurrencies’ anonymity and lack of oversight can make it difficult for regulators to control and monitor financial transactions in order to stop illegal activities like money laundering.
On-chain volume
This study examined both off-chain and on-chain transactions to examine the trends that underlie Bitcoin’s usage across borders. The study found that Bitcoin’s transactions were not only large in terms of volume, but they also displayed unique characteristics when compared with traditional capital flows.
Unlike typical foreign investments that are sensitive to economic indicators like currency strength, Bitcoin flows show a higher correlation with cryptocurrency-specific sentiments, such as market volatility and user sentiment indexes — like the Fear and Greed Index.
This analysis showed that Bitcoin transactions on-chain, those recorded in the blockchain, offer greater security and tend to be bigger than transactions off-chain. The robust security of blockchain technology protects larger financial stakes.
IMF calls for International cooperation and regulatory frameworks Digital assets have unique characteristics. These measures could help to mitigate risks and harness the benefits of digital currency, particularly as tools for economic liberty in countries that have restrictive financial environments.