There has always been the claim around bitcoin specifically that many have been using it to avoid capital controls in places with strict governments that either A, restrict your from exchanging your currency into another freely, or B, severely limit the amount of money you can actually transfer and transact with. I have had heard many conflicting statements from many different people over the years and I think it is time we evaluate this claim. I want to see what amount of people are actually using crypto for capital controls versus those mostly just speculating on the price increases.
Once bitcoin had started gaining value in the 2011-2012 period, many people started to bring up the idea of using bitcoin as a mechanism to avoid capital controls or even to avoid inflation, but after the bubble up to 10 dollars and the large drop afterwards, it was clear that in order for this to work, the price would have to continuously move up or stay much less volatile in its movement. At that point in time it wasn’t clear if bitcoin was going to survive long term and many believed that in order to have real utility, we would need to get to a higher price point. It took a few years , but the 2013 European Union Crises was where people started to actually talk about real people using bitcoin to avoid capital controls.
Cyprus initiated a bail-in to pay for debts and everyone panicked overnight. Banks were shut down, ATM withdrawals were limited and had massive lines. No one had access to their money, but people like Max Keiser were claiming that many people were using bitcoin to get past these controls. This started the bubble of 2013 that skyrocketed bitcoin to massive highs. However in reality many people on the ground in Cyprus were saying it was untrue and the localbitcoins volume seems to back that up. People had no access to money to actually buy bitcoin and those who might have, flew to other countries and accessed their accounts. In hindsight it seems that we were probably wrong.
The same idea emerged in China after devaluation of the RMB that people were buying bitcoin to thwart capital controls, which is actually half true. People in China were and continue to buy massive amounts of bitcoin, but the reason isn’t capital controls for the most part. The people who I have talked to in China and on the ground say that people are mostly treating bitcoin like a stock. They arent using it as a transitory mechanism to move money out. They are buying it holding it for a price rise and sometimes selling it. To them it is just seen as an alternative security, like it is to many other people in countries like the United States.
I think overall the majority of the price is and will most likely always be due to speculation and the use as a store of value. There are some people using it to thwart capital controls, but in many cases you have to be so rich to do so that many other options are already available to you. I will say that I think there are some countries where people are using it as a store of value, but again they are mostly staying within their own currency while doing so or speculating that the price will move up in the future. We are still at a point where bitcoin is small enough and volatile enough to scare off a large amount of people. In order for any cryptocurrency to be a real utility in terms of capital control aversion, we need to reach a marketcap level where a group of people cant hurt the price in an afternoon. We also need liquidity on much higher levels so quick movements can be easily done.