BIS Report: Cross-Border Crypto Transactions Hit $2.6 Trillion in 2021, Driven by Speculative and Transactional Needs

The Bank of International Settlements (BIS) has recently published a report titled 'DeFiying Gravity' that delves into the global cross-border movements of crypto assets, including Bitcoin, Ether, and prominent stablecoins such as Tether and USD Coin. The report, which covers data from 2017 to 2024 across 184 countries, underscores the growing significance of decentralized assets in the world economy and examines the factors driving cross-border crypto flows.

The report reveals that cross-border crypto transactions reached a staggering $2.6 trillion in 2021, highlighting the rapid growth of the market. Stablecoins, such as Tether and USD Coin, account for approximately half of this volume, with their usage in cross-border remittances and transactions on the rise. The report's gravity-based analysis identifies geographical and economic factors that influence these flows, which often bypass traditional banking platforms.

Bitcoin and Ether flows are primarily driven by speculative motives, while stablecoins are more commonly used for transactional purposes, particularly in remittances. These assets are increasingly preferred for international value transfers, circumventing traditional financial intermediaries. However, despite the decentralized nature of crypto transactions, geographical and economic barriers still play a role.

The BIS report identifies two key drivers of cross-border crypto liquidity: speculative investment motivations and global economic circumstances. Bitcoin and Ether, as speculative assets, are highly sensitive to market volatility, risk aversion, and global funding conditions, which influence investor sentiment and overall transaction volumes. In contrast, stablecoins pegged against traditional fiat currencies are used more for cross-border payments in regions with high remittance fees or currency devaluation, reflecting their role in decentralized financial activities (DeFi).

Stablecoins enable the bypassing of traditional financial systems, reducing costs and improving transaction efficiency. This emerging role of stablecoins in DeFi highlights their potential to revolutionize cross-border payments, particularly in areas with high inflation or currency instability.

The report also notes the ineffectiveness of capital flow management measures (CFMs) in regulating cross-border crypto transactions. CFMs, designed to control capital outflows or inflows, have little impact on crypto flows and may even encourage higher flows as participants seek to circumvent restrictions using crypto assets. This underscores the resilience of the decentralized finance ecosystem and the need for more flexible regulatory frameworks to address the rapid growth of digital assets.

The BIS report concludes that the dramatic escalation of cross-border crypto flows is driven by both speculative motives and practical transactional needs, particularly in the case of stablecoins. As cryptocurrencies like Bitcoin and Ether continue to serve as speculative assets, stablecoins are becoming an integral part of the global money circuit, especially in emerging markets. This shift towards decentralized assets presents new opportunities and challenges for policymakers and regulators worldwide, suggesting that the future of global finance may increasingly focus on decentralized assets.