The report — called “A Primer on Bitcoin Cross-Border Flows” — sheds light on how the decentralized nature of Bitcoin is being leveraged to bypass traditional banking systems, especially in regions experiencing economic distress or strict capital controls.

Necessary financial tool

According to the IMF, residents of countries with restrictive financial regulations are turning to Bitcoin to move capital across borders more freely.

The report highlighted significant transaction volumes originating from countries like Argentina and Venezuela, where citizens face hyperinflation and stringent financial controls.

In these regions, Bitcoin has become a necessary financial tool for preserving wealth and accessing global markets rather than just a speculative investment.

One of the report’s authors, Eugenio Cerutti, wrote:

“Bitcoin transactions provide a way for individuals in high-inflation countries to stabilize their savings and participate in global commerce on terms that aren’t possible through their local currencies.”

However, the IMF report also cautioned against the potential risks associated with the widespread use of Bitcoin for cross-border flows.

The lack of oversight and the anonymity provided by cryptocurrencies can complicate the efforts of regulators to monitor and control financial transactions to prevent illicit activities such as money laundering.

On-chain volume

The study reviewed both on-chain and off-chain transaction data to explore the trends behind Bitcoin’s use across borders. It found that Bitcoin transactions are not only substantial in volume but also exhibit unique characteristics compared to 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.

The analysis also pointed out that on-chain Bitcoin transactions, which are recorded on the blockchain and offer more security, tend to be larger than off-chain transactions. This indicates that the robust security features of blockchain technology often protect larger financial stakes.

The IMF called for international cooperation and regulatory frameworks that encompass the unique aspects of digital assets. Such measures would help mitigate the risks while harnessing the benefits of digital currencies, especially as tools for economic freedom in countries with restrictive financial environments.