FX168 Financial News (Asia Pacific) News The International Monetary Fund (IMF) recently released the “Preliminary Study of Bitcoin's Cross-border Flow” report, revealed that Bitcoin has become an important international financial instrument to “preserve wealth”, especially in regions facing economic difficulties or strict capital controls.

According to the IMF, many users in these regions are turning to Bitcoin to move capital more freely across borders.

The report mentioned that off-chain cross-border flows appear to be linked to incentives to avoid capital movement restrictions.

This shows that residents of countries facing hyperinflation and strict financial regulations, such as Argentina and Venezuela, are discovering the value of Bitcoin as a necessary financial instrument.

Why choose Bitcoin? The IMF report notes that Bitcoin's decentralized nature allows it to bypass traditional banking systems, making it a popular choice for residents of countries with strict financial regulations.

The report takes an in-depth look at on-chain and off-chain transaction data to explore the trends behind Bitcoin's cross-border usage. This shows that Bitcoin transactions show unique characteristics compared to traditional capital flows.

On-chain Bitcoin transactions are recorded on the blockchain and provide greater security, and are often larger than off-chain transactions. This means that compared to traditional financing transactions that are prone to accidents, blockchain technology's powerful security features can generally protect more important financial interests.

Furthermore, unlike typical foreign investments that are sensitive to economic indicators such as currency strength, Bitcoin traffic is more correlated with crypto-specific sentiment.

This points to a range of unique factors affecting the use of Bitcoin in cross-border transactions.

While the IMF report acknowledges the benefits of Bitcoin in cross-border transactions, it also warns of the potential risks associated with its widespread use. The anonymity and lack of supervision offered by cryptocurrencies may complicate efforts to monitor and control financial transactions to prevent illegal activities such as money laundering.

The IMF emphasized in its report the need for international cooperation and regulatory frameworks covering unique aspects of digital assets. This will help mitigate risk while allowing countries with limited financial environments to take advantage of the benefits of digital currencies.

The IMF's recent report revealed Bitcoin's emerging role as an essential financial instrument to preserve wealth and facilitate cross-border capital flows. While Bitcoin provides a unique and flexible alternative, the need for an international regulatory framework and cooperation remains critical to ensure the safe and responsible use of cryptocurrencies.

You should know that in December 2023, IMF Managing Director Georgieva said in her opening address at an industry summit in Seoul, South Korea, that the massive adoption of crypto assets may disrupt macro-financial stability.

She also said at the time that the massive adoption of crypto assets may affect the effectiveness of monetary policy transmission, capital flow management measures, and fiscal sustainability due to tax fluctuations.

Even on April 12, the IMF asked El Salvador to amend laws supporting Bitcoin. Because the law impedes El Salvador's efforts to obtain a credit line of 1.4 billion dollars.

What is easy to see from the report is that with the adoption of Bitcoin spot ETFs such as BlackRock and Fidelity by well-known US asset management giants, which are gradually accepted and adopted by mainstream financial institutions in the world, and the scale of free cross-border capital transfers on and off the Bitcoin chain continues to expand, Bitcoin has become an asset target that the IMF must pay attention to and study.

The IMF report concluded that since Bitcoin is a decentralized and anonymous cryptographic transaction technology, measuring Bitcoin's cross-border flows is challenging and can currently only be achieved through a series of non-simple assumptions. Although it provides a comprehensive method for exploring on-chain and off-chain traffic to study global cross-border traffic, the data set does not capture the full content of Bitcoin's cross-border transactions.

Therefore, improving the measurement of flow and determining the residence of on-chain and off-chain cross-border flows based on transactional data is the key to thoroughly understanding Bitcoin's cross-border dynamics, evaluating future policy requirements, and designing appropriate countermeasures.