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Research

Analysis: Russia and Venezuela dominating LocalBitcoins volumes, an intriguing proxy for bitcoin demand

Quick Take

  • LocalBitcoins volumes give a good insight into bitcoin demand in a specific country
  • Coin Dance aggregates LocalBitcoins data but still misses important features such as volumes in USD, demographic breakdown, and weighting by population
  • Russia is dominating LocalBitcoins volumes with 26.5% trailed by Venezuela (12.2%) and the U.S. (11.8%)
  • If LocalBitcoins volumes are indicative, the importance of developing countries in the Bitcoin ecosystem is quickly growing
  • In 2013, 90% of all volume was coming from the U.S., UK, and Australia. Now, the three share a mere 19%

While the amount of bitcoin activity can be easily learned by looking at numerous data sources, learning the where can be more challenging. Online exchanges, home to the large majority of all cryptocurrencies are traded, do not publish country-specific data. Fortunately, though, there is a good proxy for geographic information: LocalBitcoins, the most popular peer-to-peer exchange and escrow service. The company allows people to trade bitcoins between one other in person or online and LocalBitcoins’ data is compiled into weekly trade volumes, separated by country. While the data, which comes from a group called Coin Dance, is fascinating, there are caveats.

Critical among them is that a decrease in LocalBitcoins volumes is not necessarily indicative of a decreased demand for bitcoin in a country. The lower volume on LocalBitcoins could also mean that the trading infrastructure in the country has become so well-developed that people opt out of P2P in favor of online exchanges. However, if LocalBitcoins volumes increase, it is often a very good indicator of heightened demand for bitcoin in such country. In rare cases (e.g., China), it could also mean that the existing infrastructure was affected by a shock such as banning exchanges.

Beyond that warning, Coin Dance is also missing three very important features:

  • There is no option to switch volumes to USD (only local currency and BTC)
  • There is no breakdown of total volumes by country
  • Weighting the volumes by population of each country

The inability to convert volumes to USD is quite a big problem. Denominating volumes in bitcoin is not practical for comparative purposes. The volume represented by 1 BTC in 2013 is not the same as the volume of 1 BTC in 2018. And denominating volumes in unstable local currencies is also not very useful — especially for rapidly inflating currencies like the Venezuelan bolívar. This often leads to people misinterpreting to data and making incorrect conclusions.

The breakdown of total volumes by country would also provide valuable insights. It could be a proxy for a country’s particular importance in the Bitcoin ecosystem. Moreover, weighting the volumes by a country’s population would also be useful. It’s logical that countries like China with more than a billion people are expected to have larger volumes than Sweden with a population of 10 million. The Block has decided to address these missing features and compile the data ourselves.

Here is a graph of global volumes on LocalBitcoins denominated in USD (can also be found here):

Here are graphs of volumes of 12 most active countries on LocalBitcoins denominated in USD:

It’s worth noting that the volumes started trending up in most countries in 2017. The U.S. is an outlier here with constant growth from 2013 to the end of 2017. The UK also seemed to be the most drastically affected by the boom in prices. When prices crashed in early 2018, volumes leveled out again. China’s volumes are interesting to note because irregularities there indicate external shocks; such as the ban on exchanges and ICOs.

Now let’s look at historical volumes denominated in USD graphed on one chart:

From the graph above, it’s becoming clear that Russia is starting to dominate LocalBitcoins volumes. Russia is expected to approve new legislation regarding the legality of local cryptocurrency exchanges by the end of 2018. Until then, there are no regulated cryptocurrency on-ramps, which explains the high LocalBitcoins volumes. The graph above is hard to read so let’s examine a breakdown of total volumes by country in the week from October 13 to October 20 — the most recent datapoint.

Indeed, 26.5% of all LocalBitcoins volumes are currently coming from Russia. Russia’s volume is two times as high as second-place Venezuela. The South American nations are seeing growth due to the country’s hyperinflation, which is now estimated to be close to 200,000% annually. The International Monetary Fund (IMF) projected it could hit 1,000,000% by end-2018 — similar to Weimar Germany during the 1920s and Zimbabwe in the 2000s.

Here we look at the share of total volume for the 12 most active countries on LocalBitcoins:

The trend seems to be that the developed countries are losing their footing while the importance of developing countries in the Bitcoin ecosystem is quickly growing.

Lastly, it’s also interesting to look at LocalBitcoins volumes weighted by the population. Here is a graph depicting the current volumes divided by the country’s population.

Venezuela is leading the way, trailed by Russia, while countries like UK, Australia, and U.S. are falling behind.

From the analysis above, it’s now increasingly clear that bitcoin is becoming more important in developing economies, which are starting to play a larger role in the Bitcoin ecosystem. In July 2013, about 90% of all volume was coming from the U.S., the UK, and Australia. Fast forward 5 years, these three countries now share a mere 19% of all volumes.