Who Buys Bitcoin and Why?
And are there some links between cultures and love for crypto?
Well, according to research, there might be a pattern. Being a high-risk asset that used to be associated with illegal activities, money laundering, and darknet, Bitcoin might not be for everybody. A risk-taking attitude is related to overconfidence, and it’s fair to assume that these qualities are more common in certain cultures.
And here’s when the concept of individualism, specifically when dealing with personal finance, comes into play. There is a theory that some countries encourage Bitcoin trading more than others. It might depend on various factors, from a willingness to take risks to internet coverage, the country’s economic situation, and the legal environment.
Luckily, blockchain transactions are publicly available, making it a lot easier to review transaction patterns in various regions and compare the outcome.
The Individualism Culture
The study we’re going to use as a reference is analyzing Bitcoin trades in 80 countries from 2009 till 2018.
The culture we were born to shapes the way we behave and that includes the way we deal with our finance. When it comes to financing, individualism plays an important role. Societies that encourage individualism suggest that people view themselves as a separate entity rather than a community member. As a result, people would depend solely on themselves instead of solving issues collectively.
According to several studies, individualists tend to take risks more often than people from collectivist cultures. The reason behind that when people are left to their own devices, they usually bargain for a bigger profit. Overconfidence is a powerful driving force, and for this reason, individualists typically have more faith in their capabilities and skills. This gives them the confidence to take more risks, such as investing in Bitcoin.
Another fascinating insight on individualists is that they prefer to rely on their conclusions rather than public information. That’s why they are accustomed to making investment decisions based on their perspectives instead of trusting news about a particular company and the possible value of its stocks. This, in turn, leads to another curious consequence. Apparently, in countries with an individualistic model, the lottery-like assets are often overpriced, and people underestimate the possibility of market crashes. Ironically, that is likely to lead to an actual market crash, and Bitcoin’s price patterns seem to support this theory.
It’s All About Data
The research breaks down transaction data from blockchain.info and links IP addresses of the people making transactions to their geolocations.
As one would expect, larger economies are using Bitcoin a lot more often. When it comes to the average amount of transactions, the US is among the most potent leaders, with over 17.5 million transactions per year. And just like we assumed earlier, the US is the country that boasts the highest individualism score.
Germany and Netherlands are also among the locations keen on Bitcoin: 17 and 21 million transactions were executed in these countries, respectively. If we look into volumes, an average annual volume in the US is about 650 million, again closely followed by Germany, Netherlands, France, and the UK. It’s fair to say that these five countries are the epicenters of Bitcoin trade. Emerging markets, in turn, show significantly lower Bitcoin usage.
Other factors promoting Bitcoin usage include broader internet coverage and positive regulatory arrangements within the country.
New 2020 Statistics
According to Statista, in 2020, the US, Russia, and Nigeria were the top three countries in BTC trading volume on online exchanges. Europe and China came only fourth and fifth. The challenging economic situation often pushes people to look for alternative sources of income. That’s why people from developing countries are starting to bet on cryptocurrency more and more each year. And keeping devaluation in mind, crypto can even serve as a better tool for saving value.
Bitcoin’s popularity in these countries, African in particular, can also be explained by the fact that its citizens often move abroad to make a higher income and help their families back home. However, the mainstream banking system is outdated, and money transferring costs can become a severe problem. Whereas Bitcoin can offer a transformational banking experience.
The political environment also matters tremendously. If you live in a country like Nigeria or Russia, where your bank account can be suddenly frozen because of your political views, you would probably choose to keep your money elsewhere.
As for Asia, it has got ahead of Europe too in the past couple of years. 31% of crypto transactions between 2019 and 2020 were executed in East Asia, amounting to $107 billion. However, the Asian crypto market has its own special aspects.
Although Bitcoin is still popular in countries like Japan, there is a visible shift towards altcoins. Asian countries are becoming focused on utility tokens and choose trading over investing. Smartphone culture creates a perfect environment for crypto adoption and testing out new technologies. And as for Chinese influence, not only is it the number one mining location (producing 65% of global hash rate), but the Chinese government takes blockchain tech more than seriously. Moreover, Asia is home to some of the biggest crypto exchanges including OKEx, Huobi, Kucoin, and others. Who knows, in the near future we might see Asia becoming the primary location for cryptocurrency and blockchain technology development.
The Bottom Line
When it comes to investing in Bitcoin, cultural background certainly matters. High-risk cryptocurrency assets seem to attract three main types of investors: people from individualistic cultures seeking high profits, those from developing countries who use it as a safe haven, and others motivated by technology. Overconfidence, need, and progress are three main factors that increase the use of cryptocurrencies in different regions.
Originally published at https://blog.mercuryo.io/post/who-buys-bitcoin-and-why.
