شنبه, ۱ شهریور ۱۳۹۳، ۱۰:۱۲ ق.ظ
Which markets have the greatest potential for bitcoin adoption?
With over $250m
of venture capital invested in bitcoin startups to date, much is at
stake in understanding which markets will prove most fertile for
bitcoin. In addition, many governments and regulatory agencies are
seeking to better understand the economic opportunities presented by
bitcoin along with the perceived risks.
The new Bitcoin Market Potential Index (BMPI) is the first attempt at
providing a rigorous answer to the above question, assembling a new
data set to rank the potential utility of bitcoin across 177 countries.
The BMPI can be helpful to entrepreneurs and investors planning international expansion, regulators or economic
development agencies wondering whether bitcoin will gain traction in
their country, or anyone who wants a better understanding of how bitcoin
may progress geographically in the months and years to come.
How can bitcoin adoption be forecasted?
Sitting at the fast-moving intersection of technology, policy and
economics, bitcoin is both a fascinating and complex research topic.
One of the first questions that arises in constructing a forecast of
bitcoin’s potential adoption is what kind of adoption should the
index measure?[1]
For example, should the BMPI focus on where bitcoin has the most potential to be used as a store of value? Or should it measure bitcoin’s commercial potential as a medium of exchange?
And which of these two is more likely to influence bitcoin’s geographic
progression? The answers to such questions have a significant influence
on the choice of index variables and weightings.
The BMPI is intended to forecast bitcoin’s total potential adoption
and thus includes data which relate both to bitcoin’s function as a
store of value and as a medium of exchange, as well as a technology
platform.
The data set is structured in such a way that it can also be used to
construct alternative versions of the index around different scenarios
or more specific use cases. For example, one may believe that bitcoin
does not have as much immediate potential in the international remittances market as compared to its use as an alternative investment vehicle or store of value. Or one may feel that Darkcoin
is going to supplant bitcoin as the preferred cryptocurrency in the
black market and that therefore the size of the informal economy in each
country is not a significant factor in bitcoin adoption. Such scenarios
can be incorporated into alternative calculations of the BMPI by
removing the corresponding variables and or adjusting weights.
Which data is most closely linked to bitcoin adoption?
On the question of what variables to include in the index it is
useful to remember the old joke about how economists go about choosing
which data to work with:
A drunk on his way home from a bar
realises that he has dropped his keys. He gets down on his hands and
knees and starts groping around beneath a lamppost. A policeman asks
what he’s doing.
“I lost my keys in the park,” says the drunk.
“Then why are you looking for them under the lamppost?” asks the puzzled cop.
“Because,” says the drunk, “that’s where the light is.”[2]
In other words, economists often are forced to use available data
rather than the data which, if it did exist, has a stronger
relationship to the subject of study.
With bitcoin it could, for example, be quite useful (and more
precise) to examine which cities or regions may see the fastest bitcoin
adoption. However, much of the relevant data is only available at
country level and, as a result, the BMPI analysis is a country-level
index.
A further challenge is that even when relevant data exists it only
exists for a small subset of countries. For example, publicly available
smartphone penetration data – which could be quite helpful in
understanding bitcoin adoption – is unfortunately only available for 48 countries.
If we were to exclude countries which do not have smartphone
penetration data from the BMPI then the index would lose nearly 130
countries.
Another data point which could potentially be helpful for understanding bitcoin adoption is how quickly social norms spread
across different countries. After all, using bitcoin requires at least
some change in existing behaviour. However, this particular study only covered 25 countries.
In the interest of trying to ensure the BMPI was comprehensive in
terms of countries covered, an effort was made to select index variables
with available data for a large number of countries.
The more data the better? How should data be weighted?
When it comes to indexes more data does not always equate to ‘better’ results.
However, given the complexity of forecasting bitcoin adoption every
effort has been made to include the variables which may have the
greatest influence on bitcoin’s progress. Adding additional variables to
an index can also help provide a more nuanced ranking of countries.
On the question of how different data should be weighted in the
index, can it be reasonably claimed that some variables will be more
important to bitcoin’s future than others? If yes, how much more
important?
While weighting choices can be controversial, it is often useful in
making indexes more realistic, and some variables in the BMPI are
therefore weighted more strongly than others.
Some will certainly disagree with the BMPI’s weighting choices, and
it is likely that the weightings will be adjusted over time as we learn
more about bitcoin adoption. Meanwhile, unlike other bitcoin indexes
which do not disclose their weightings it can at least be said that the BMPI weightings and methodology are openly documented.
BMPI data and sources
In constructing the BMPI a high priority was placed on finding both
reliable and recent data. BMPI data also comes from a variety of
different sources, including governments, multinational agencies,
private companies and scholarly research. In total nine principal
sources of data were used to construct the BMPI (Table 1).
Table 1: BMPI Data Sources and Time Periods
Sourceforge.net (July 2014) |
CIA World Factbook (2013) |
Elgin and Oztunali (2012) |
Google Trends (July 2014) |
In some instances the data sets from Table 1 were supplemented or updated to reflect recent events. For example, Reinhart and Rogoff’s financial crisis data were updated with this week’s sovereign default by Argentina.
The BMPI variables
The BMPI is comprised of 39 variables deemed important to bitcoin’s
potential for adoption. These 39 variables are grouped into seven
equally-weighted categories to calculate BMPI’s rankings (Table 2).
Table 2: BMPI Data Categories
Financial Crises – Historical
|
A full discussion of the relationship between the above categories
and potential bitcoin adoption is impractical here due to space
constraints but it is useful to highlight some examples.
Bitcoin is fundamentally a technology and the level of technology
adoption in a country, as reflected in measures such as internet use and
mobile phone penetration, will have an important influence on bitcoin
adoption. In addition, the memory of recent financial crises,
particularly hyperinflation or a currency crisis, will also have an
influence on adoption. The greater the degree of technology penetration,
frequency of financial crisis, etc for a particular country then the
higher that country ranks on the BMPI.
Why is bitcoin regulation not included in the BMPI?
Just as the choice of variables included in the BMPI must be defended
some variables which have been omitted from the BMPI also require
justification. For example, one category which was excluded from the
BMPI but which could have a significant influence on bitcoin adoption is
bitcoin regulation.
The reason why bitcoin regulation was excluded from the BMPI for now
is two-fold. First, bitcoin regulation is a recent development and still
evolving. Second, and perhaps more importantly, bitcoin regulation may
end up cutting both ways in terms of forecasting the likelihood of
bitcoin adoption.
On the one hand, more aggressive bitcoin regulation in countries such
as Ecuador and Bolivia may ultimately serve as a significant barrier to
bitcoin’s prospects in those countries. However, aggressive bitcoin
regulation could also provide a signal from regulators about bitcoin’s
positive adoption prospects in that country, as perhaps is the case in
China.
In sum, it is too early to tell how to score bitcoin regulation and
this category has therefore not been included in the overall BMPI
rankings.
The BMPI sub indexes
The categories in Table 2 also comprise the sub
indexes of the overall BMPI, and these sub indexes allow for micro
comparisons. For example, we can compare the rankings in a sub index
like Bitcoin Penetration, where the United States is ranked number one
by a significant margin over number two Netherlands, with rankings in
other categories.
While the Inflation category is based on a single variable (consumer price inflation) most of the categories in Table 2 contain multiple variables. For example, the Bitcoin Penetration category contains the following four variables:
Global bitcoin nodes
Google ‘bitcoin’ search share
Bitcoin client software downloads
Bitcoin venture capital investment (dollar amount by country)
The Bitcoin Penetration sub index is laid out in detail in Table 3.
Table 3: Bitcoin Penetration Sub Index Variables
| Category |
Variable |
Sub Variable |
Source |
b) Global Bitcoin nodes per capita |
Bitcoin client software downloads |
a) Total client downloads |
b) Client downloads per capita |
Sourceforge.net / World Bank |
Google ‘bitcoin’ searches |
As noted earlier, not all BMPI variables are equally weighted.
For example, the score for the ‘Global bitcoin nodes’ variable is
broken down into two equally weighted sub variables – total bitcoin
nodes per country and bitcoin nodes per capita. Sub variables were
utilized in this case so that small countries with a high per capita
number of nodes, such as Iceland, are not disadvantaged in the overall
index ranking due to the small size of their population or economy.
A summary of the BMPI dataset can be found in Table 4.
Table 4: BMPI Dataset Summary
| Countries |
Categories |
Variables |
|
As a point of reference, the widely cited Legatum Prosperity Index includes 89 different variables for 142 nations around the world.
The BMPI Top 10
The 10 countries with the highest potential for bitcoin adoption
according to the Bitcoin Market Potential Index can be found in Table 5.
Table 5: BMPI Top 10 Countries
Given the BMPI’s criteria it is not
surprising to see Argentina ranked number one. The country suffers from
persistently high inflation, has a large informal economy and a history
of recent financial crises. In addition, Argentina has a relatively high
degree of technology penetration and controls on the movement of
capital. Argentina also just defaulted on its sovereign debt for the second time in 13 years.
While external sovereign defaults have a relatively minor weighting in
the BMPI this recent development is reflected in the BMPI rankings.
Like Argentina, number two ranked Venezuela also suffers from
relatively high inflation and frequent financial crises, while number
three ranked Zimbabwe has the largest informal economy (black market) of
any country in the dataset at 63% of GDP.
A country which often features in discussion of bitcoin adoption but
which is just outside of the top-10 is China, which is ranked number 13.
China’s ranking is brought down by its relatively small black market;
according to Elgin and Oztunali (2012) and other shadow economy
researchers – ie Buehn and Schenider (2012), Schneider, Buehn and
Montenegro (2010) – it is estimated that roughly 10% of the economic
activity is conducted informally in China.
In contrast, near the bottom of the overall BMPI rankings at number 167 is Ireland, which recently hosted a high-profile
bitcoin conference. While Ireland scores well in some categories, such
as technology and bitcoin penetration, the country has wrestled with
deflationary pressures in recent years and also has a relatively limited
set of restrictions on the flow of capital. Dublin is a global tech
hub, however, and the fact that the BMPI does not include a separate
tech hub variable brings down Ireland’s ranking.
A full list of the BMPI rankings as well as a more detailed discussion of the index methodology, data and sources is available here.
An impossible challenge?
While indexes like the BMPI can provide a useful reference point to
better understand factors which may influence bitcoin adoption it is
important to acknowledge the limitations that are inherent in the
construction of any such ranking. Countless variables not included in
the index will influence adoption, data sets are often incomplete, and
index methodology choices can have a significant influence on rankings.
More will be written about the Bitcoin Market Potential Index in the weeks to come on CoinDesk and in the State of Bitcoin reports, and the BMPI will also be updated periodically as new data becomes available.
Any surprises in the BMPI results? What data is missing from the BMPI? Share your thoughts in the comments below.
[1] Here the term ‘adoption’ means use and is captured in metrics
such as number of bitcoin accepting businesses, number of wallets, and
other use metrics. Unfortunately country level data does not exist for
many of these adoption metrics.
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