Introducing UsefulTulips.org
By: Matt Ahlborg
Tags: Economics, Technology, Bitcoin, Cryptocurrency, Data Science

New Analysis

Since writing my first article in February, I’ve learned a lot more about the nuances existent within this data set and it has changed my interpretation of the data considerably:

1. Currencies ≠ Countries

In the process of analyzing advertisements on Localbitcoins, I found that a certain few currencies trade in many countries. This is best exemplified by the world’s reserve currency, the US Dollar, which is traded in dozens of countries around the world. In doing preliminary analysis, I estimate about 25% of USD trades conducted on LocalBitcoins are such that both sides of the trade reside outside of the US. Additionally, I suspect that out of the remaining 75%, the majority of those trades have some sense of internationality where one side of the trade resides outside of the USA or where the dollar wallet associated with the trade is intended for use by someone residing outside of the USA. USD trades are usually conducted against online wallets like Paypal, Skrill, Zelle, or others because they are available to citizens of many countries, unlike an official US bank account.

Jurisdictions where the US Dollar trades especially high are Ecuador, Venezuela, Colombia, and Zimbabwe. While this phenomenon happens most with USD, I’ve also observed it with Euros, Russian Rubles, South African Rand, and others — usually by traders residing in respective neighboring countries and who have access to multiple currency systems, likely due to their residentiary status across multiple jurisdictions. A student born Zimbabwe studying in South Africa would be a good example. Unfortunately for the sake of analysis though, LocalBitcoins does not specify the physical locality of each side of a given trade and so it is very hard to distinguish which volumes for a given currency are attributable to which jurisdiction. On the whole though, I still feel this trend is an exception, and that most national currencies largely trade within their own jurisdiction. Many of these transactions may still have some sort of international flavor to them, however: such as remittance, cross-border payments, international freelancing work, or others.

2. LocalBitcoins Volumes are Only a Proxy for Activity

I stated in my previous article that traders oftentimes use LocalBitcoins for the first series of trades with a counter-party for safety or convenience and then may choose to move off of LocalBitcoins afterwards to avoid LocalBitcoins fees or to achieve more anonymity. After speaking with many traders on the platform, I am convinced that is happening quite a lot. As a result, I feel that the volume shown through LocalBitcoins API is only a part of the story and there exists a considerably sized web of trading relationships across social media sites and chat applications of all types which has formed over the years from activity which originally began on LocalBitcoins itself. The level of this activity is impossible to measure and could be anywhere from a significant fraction of the volumes shown through the LocalBitcoins API to several multiples of it.

3. Policy Changes at LocalBitcoins

Recently LocalBitcoins has come under increased regulatory pressure and has added KYC (know your customer) and AML (Anti-Money Laundering) measures of various degrees to its users. In May of this year, it also disallowed the trading of gift cards on the platform, ostensibly due to the fraud risk related to trading in gift cards. Lastly, citing regulatory pressure, it also moved to geo-block Iran from the platform.

While many believe that increased KYC/AML compliance will chase users and volume away from the platform, the issue is nuanced. As I’ve discovered in speaking with people who use the platform regularly, conducting KYC/AML with a company or institution which resides outside of your own jurisdiction can be agreeable so long as the KYC/AML information forwarded to LocalBitcoins does not make its may back to the government of the user who supplied it. In other words, a citizen of Venezuela may not mind submitting their documents to LocalBitcoins in Finland so long as those documents and their trading activity are not shared with the Maduro government back in Venezuela.

Most Recent Data Trends

In the article I wrote in February, I wrote on trends up until the end of 2018. Since then, three quarters have fully passed and the landscape of trading on LocalBitcoins has changed considerably.

Firstly, year to date in 2019, the small country of Venezuela has leapfrogged the Chinese Yuan and the US Dollar in trading volume on LocalBitcoins and is now second only to the Russian Ruble. So far in 2019, 250 Million Dollars worth of Venezuelan Bolivars have been traded on LocalBitcoins.com, already surpassing what was traded in 2018. Keep in mind also that a significant chunk of USD volume is attributable to Venezuela and additionally that, as I will show in a later article, much of all Latin American volume across over a dozen other currencies is also attributable to the crisis in Venezuela: