This paper aims to propose a causal relationship between the imposition of international sanctions and the level of cryptocurrency adoption, drawing on a comprehensive data set of global cryptocurrency metrics.
This study uses a data set that includes the global cryptocurrency adoption index, as compiled by Bhimani et al. (2022) and Chinalysis (2020), along with various socioeconomic factors such as democracy, education, the GINI index, GDP per capita, the Human Development Index, the Corruption Perception Index, regulatory quality, control of corruption, the Economic Freedom Index and the Network Readiness Index. In addition, this paper incorporates a global sanctions database developed by Felbermayr et al. (2020). To determine causal relationships, this study constructs an instrumental variable aimed at plausibly isolating the endogenous effects of sanctions on cryptocurrency adoption.
Using a robust empirical strategy that includes an instrumental variable approach, this research establishes a causal link between the number of sanctions and the level of cryptocurrency adoption. The findings suggest that sanctions can act as a significant motivator for countries to adopt cryptocurrencies, especially in regions with high levels of economic inequality and generalized trust, such as Africa. In addition, this study found that conflicts occurring between 1500 and 1599 could predict cryptocurrency adoption in Africa. The civil conflicts occurring between 1960 and 2017 also show a relationship with higher levels of cryptocurrency usage across the African continent.
The analysis further distinguishes the heterogeneity of these relationships across different nations, with a special emphasis on the unique context of African countries and the implications of ongoing civil conflicts.
