Flaws in LocalBitcoins Data Call Into Question Regional Adoption Claims
When bitcoin advocates claim adoption is surging in developing countries, particularly during periods of political unrest or economic turmoil, their go-to source for evidence is often LocalBitcoins.
The peer-to-peer exchange, which matches buyers and sellers of the largest cryptocurrency in nearly 250 countries, publishes weekly volume data for each nation and region where it has users. This constant stream of fresh data makes LocalBitcoins a unique window into the global market.
But a closer look at the way this data is collected shows substantial noise mixed in with the signals, undermining the claims of growing crypto use empowering the downtrodden.
For example, in Hong Kong, LocalBitcoins data seemed to show increasing volumes, with media reports since August arguing that the protests were boosting crypto adoption. Yet one member of the city’s longstanding bitcoin community, who spoke on condition of anonymity, told CoinDesk there hasn’t been any increase in bitcoin awareness among protesters, nor a noticeable change in activity among regular local users.
Researcher Matt Ahlborg reported that the volume spike in Hong Kong was actually caused by a single trader making roughly 30 transactions to quietly move a significant, albeit undisclosed, amount of bitcoin. (The platform lists both public and private offerings, the latter visible only to buyers preapproved by the seller.)
Elsewhere, conversations with bitcoin veterans in Iran and Egypt indicated LocalBitcoins volume data appeared to have little correlation to local trading activity.
In Iran, sources say, it’s common for traders to mislabel their offers as coming from another country to avoid having the trades canceled by LocalBitcoins.
In Egypt, Cairo-based entrepreneur Mohamed Abdou told CoinDesk:
“I don’t believe in these statistics as it never reflects the real volume … Egypt is still in the gray area of crypto regulations, and it is not allowed publicly. This is why there’s no clear data or statistics about it.”
LocalBitcoins spokeswoman Veruscka Xavier Filgueira told CoinDesk that some trading activity, especially for smaller amounts, can be and probably is miscategorized in regional data.
Plus, she said, “it is possible that some volume variation is driven by a particular high volume trade or an exceptionally active period for a group of traders.”
For Hong Kong in particular, she said user acquisition has remained stable, at around 1,100 new registrations per 90 days, regardless of the protests.
Out of more than 4 million registered accounts worldwide, Filgueira said the platform had 542,852 active users in September 2019. Meanwhile, traction dipped dramatically in October, due in part to a renewed focus on enforcing know-your-customer (KYC) policies.
According to Ahlborg’s data analytics website, LocalBitcoins’ overall volume in Latin America dipped 6 percent from roughly $9 million the week of Sept. 29 to $8.5 million by Oct. 20. Overall, the region saw $32 million less volume over the past 90 days, compared to the previous 90-day period.
The good, the bad and the ugly
Traders in Venezuela told CoinDesk they believe some of the LocalBitcoins volume there comes from government officials looking to get richer, complicating bitcoin’s image as the great leveler.
Such is the opinion of John Villar, a programmer and entrepreneur who uses the platform regularly to exchange bitcoins and pay his employees in bolivares.
“Mining can only give you a certain amount, but to print bolivares non-stop and then buy bitcoins can give you much more,” he said, explaining how government officials afford bitcoin stashes.
Although LocalBitcoins has KYC data for its traders, spokeswoman Filgueira would not say whether government officials in the repressive regimes where usage is highest are, themselves, using the platform.
However, Ahlborg said that, since the average Venezeula trade is worth roughly $30, there’s strong evidence to suggest a high ratio of middle-class civilian users, even if there are anomalies related to politicians and whales.
Venezuelan expat and activist David Fernando Lopez agreed with this assessment.
“Government officials use gold as a way to funnel money in and out of the country, and lately, they’ve been talking about bitcoin,” Lopez said. “But I don’t think they’re using LocalBitcoins, that’s more for regular people.”
Part of the October drop-off in volumes may also be related to users switching back to dollars as they become more accessible. Ahlborg said few Venezuelans prefer to store their value in bitcoin when dollars are available.
All things considered, and based on the anecdotal evidence, regional volume data from exchanges doesn’t inherently correlate to growing usage or popularity on the ground. Often times, they may reflect a visiting whale or single party moving assets offshore during an isolated deal.
Filgueira said high-volume traders must offer proof of local residence, but that regional data is still far from perfect. More research is needed to better understand bitcoin usage in emerging markets.
Speaking to the broader shift from techie hobbyists to users in restrictive political climates, Filgueira concluded:
“LocalBitcoins’ largest volumes in 2014 were concentrated in countries like the UK and in the USA and now we have Venezuela, Russia and Nigeria in the list of countries with the highest trade volumes, which doesn’t only reflect the change in the profile of our user base but might also indicate a step forward in the usage of BTC as an alternative financial system.”
Diana Aguilar contributed reporting.
Globe image via Shutterstock