Cryptos Reach $600 Billion in Cross-Border Flows, but Speculation Dominates

A new report from the Bank for International Settlements (BIS) highlights a disturbing reality. Cross-border flows in crypto reach $600 billion, but with a strong dominance

The Bank for International Settlements (BIS) has shared some disturbing figures regarding cross-border flows in crypto. While volumes reached $600 billion in the second quarter of 2024, with major coins like bitcoin, Ethereum, USDT, and USDC taking the lead, these flows were mainly driven by speculative activity.

This finding was unveiled in a new report by BIS economists, who focused on the main drivers of cross-border capital flows in native crypto assets. Their analysis, which covered the period from the first quarter of 2021 to the second quarter of 2024, uncovered a surprising finding: global funding conditions had a greater impact on crypto asset flows than macroeconomic conditions in the receiving or sending countries.

This sensitivity of crypto flows to global liquidity conditions is a consequence of the close ties between crypto and traditional finance, which is becoming increasingly evident. The study indicates that the crypto market is no longer operating in isolation. Its behavior is becoming increasingly aligned with that of classic risky asset classes.

This is also leading to a broader diversification of capital flows, which are no longer solely channeled through traditional bank credit or equity markets.

The researchers also detected a correlation between periods of restrictive monetary policy, like those observed in 2022 and the first quarter of 2024, and a decline in the volume of crypto flows. Conversely, periods of strong risk appetite and abundant liquidity, like those seen in the second quarter of 2021 and the fourth quarter of 2023, were accompanied by an increase in capital movement.

The report further notes that the majority of these flows are quickly realized, with an average holding time of less than three months for capital flows. This finding is especially relevant in the context of emerging economies, where large shares of bitcoin and stablecoins are used for cross-border payments due to the high cost and limited access to traditional banking services.

In addition, the report highlights the role of crypto in serving as a financial safe haven during turbulent economic periods. Countries like Argentina, Brazil, Turkey, Mexico, and Vietnam, which are characterized by high inflation or macroeconomic instability, are also among those with the largest outflows in major crypto-assets.

This analysis showcases how crypto is being integrated into diverse financial strategies across the globe.