Bitcoin and the Hidden Exchange Rate Puzzle

Bitcoin, the popular cryptocurrency, has been studied for its price differences across markets. This research delves deeper by looking at trade data from LocalBitcoins. com, a peer-to-peer exchange platform. It explores how economic and regulatory factors shape Bitcoin markets and how cryptocurrencies help move money internationally. By comparing Bitcoin prices, researchers created "shadow exchange rates" (SERs) for national currencies against the US dollar. These rates were then compared to official exchange rates (OERs), revealing discrepancies called Bitcoin premiums. On LocalBitcoins, factors influencing these premiums were studied, including data from the Bitcoin blockchain, traditional exchanges, and international money transfer channels. Surprisingly, the Bitcoin blockchain's structure didn't affect premiums in this peer-to-peer market. High remittance costs indicate issues with traditional money transfer systems. For countries with strict capital controls, these costs push Bitcoin premiums higher. Intriguingly, these premiums could forecast future currency depreciation for some countries.