A Primer on Bitcoin Cross-Border Flows Measurement and Drivers Eugenio Cerutti, Jiaqian Chen, and Martina Hengge WP/24/85IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management. 2024 APR * We thank Pamela Cardozo, Andrés Fernández, Clemens Graf von Luckner, Maggie Hu, Kenneth Kang, Adrian Lee, andconference and seminar participants at the 4th Crypto Asset Lab Conference, the IMF Macrofinancial Seminar, and the IMFEmerging Market Forum for useful comments and suggestions.© 2024 International Monetary Fund WP/24/85 IMF Working Paper Strategy, Policy, and Review Department A Primer on Bitcoin Cross-Border Flows: Measurement and Drivers Prepared by Eugenio Cerutti, Jiaqian Chen, and Martina Hengge* Authorized for distribution by Kenneth Kang April 2024 IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management. ABSTRACT: The rapid growth of crypto assets raises important questions about their cross-border usage. To gain a better understanding of cross-border Bitcoin flows, we use raw data covering both on-chain (on the Bitcoin blockchain) and off-chain (outside the Bitcoin blockchain) transactions globally. We provide a detailed description of available methodologies and datasets, and discuss the crucial assumptions behind the quantification of cross-border flows. We then present novel stylized facts about Bitcoin cross-border flows and study their global and domestic drivers. Bitcoin cross-border flows respond differently than capital flows to traditional drivers of capital flows, and differences appear between on-chain and off-chain Bitcoin cross-border flows. Off-chain cross-border flows seem correlated with incentives to avoid capital flow restrictions. JEL Classification Numbers: E42; E51; E58; F21; F32; F38 Keywords: Crypto assets; Bitcoin; Cross-border flows; Capital flows Author’s E-Mail Address: ecerutti@imf.org, jchen@imf.org, mhengge@imf.org 1 IntroductionThe rapid growth of Bitcoin since its launch in 2009 has increased its potential macroeconomicimplications. Bitcoin is the unit of account of a decentralized global digital ecosystem with publicaccess. The technological innovation behind it—a sustainable blockchain consisting of a distributedledger that operates and exists without any trusted parties (Halaburda et al., 2022)—has facilitateda very large number of transactions and received the attention of private and public agents. Despiteits price volatility and the fact that it is not backed by any real asset or any governmental claim,the price of Bitcoin and the number of active users has increased markedly over the past decade(Auer et al., 2023). The global nature of the underlying technologies implies that a large proportionof the transactions are likely performed across national borders. Nonetheless, identifying Bitcoincross-border transactions is far from straightforward.While access to the Bitcoin network is public, it provides a large degree of pseudonymity be-cause the individual users are not well identified. This pseudonymity of the users, combined withthe segmentation of the Bitcoin market into on-chain (recorded on the Bitcoin blockchain) andoff-chain (not recorded on the Bitcoin blockchain) transactions, has limited a comprehensive un-derstanding of global Bitcoin cross-border flows.1In this paper, we tackle this challenge by usingthree complementary and workable datasets to study Bitcoin transactions and cross-border flows.We discuss the pros and cons of the different approaches to estimating Bitcoin cross-border flows,present novel stylized facts using raw data that cover both on-chain and off-chain transactions, andanalyse the drivers of Bitcoin cross-border flows in comparison to capital flows for a large panelof countries. Our findings suggest that Bitcoin cross-border flows respond differently than capitalflows to traditional global drivers. Moreover, differences appear between on-chain and off-chainBitcoin cross-border flows.We start by constructing datasets on Bitcoin flows. First, we build a dataset of on-chain flows1An on-chain Bitcoin user (i.e., any person transacting Bitcoins through the Bitcoin network) does not have anaccount but a wallet, which is the combination of a Bitcoin address (i.e., “an account number”, also called a publickey) and a private key (i.e., a password). As highlighted in the literature, wallets are relatively easy to create, usersoften have more than one wallet, and the way the Bitcoin system defines an address implies that there is potentiallya nearly infinite number of wallets. In the wo