To date, people do not use cryptocurrencies widely to make payments, to measure value or to finance real-world investments. Yet despite this, retail investors continue entering into crypto exchanges to trade cryptocurrencies like Bitcoin. What explains this adoption?
We study the drivers of crypto trading app adoption using a
novel database on the daily use of crypto exchange apps for 95 countries
over 2015–22. We make this database available as a resource for
researchers, policymakers and practitioners. We answer the following
questions: do more people join crypto markets when the price of Bitcoin
rises? If so, who are these new users? And what country characteristics
matter more for crypto adoption?
Findings
We show that, when the price of Bitcoin rises, more people
download and actively use crypto exchange apps. These new users are
disproportionately younger and male, commonly identified as the most
"risk-seeking" segment of the population. We show that, due to price
declines, an estimated 73-81% of retail investors have likely lost money
on their initial investment. To establish a causal effect of crypto
prices on adoption, we focus on two events that affected Bitcoin's price
without directly impacting crypto exchange app usage: the crackdown of
Chinese authorities on crypto mining in mid-2021 and the social unrest
in Kazakhstan, a country where many Bitcoin miners are located, in early
2022. We find that during both events a change in the price triggers a
significant change in the number of users. Overall, our results suggest
that rising Bitcoin prices are what drive crypto adoption (consistent
with theories of feedback trading), rather than alternative
explanations.
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