Does currency substitution (CS) explain the phenomenon of cryptocurrency adoption (CA)?

Abstract

Literature has proved that Currency Substitution (CS) is manifested when a country is experiencing macroeconomic instability, characterized by the existence of economic phenomenon’s that put in risk the use of local money. Macroeconomic determinants push countries national currencies to fail in effectively perform the functions of: medium of exchange, store of value and value of account. Consequently, loss of confidence in the national currency induced market participants to replace it for foreign currency, where the most popular solution had been demonstrated to be the US dollar. In the last decade, technological progression permitted the existence of a new form of money, cryptocurrencies appeared to take a leader character in the scene of the financial market. Both as money or investment purposes, cryptocurrencies had gained a lot of popularity with the emergence of Bitcoin and current investigation had declared that it has a promising future. The objective of this paper is to investigate up to what extent the phenomenon of CS can explain cryptocurrency adoption. Literature determined that CS is enhanced in certain macroeconomic conditions, but what happen with cryptocurrencies when they are exposed to them? Do determinants of CS have any relationship with cryptocurrency adoption? Panel data analysis and lineal regressions are examined in this paper in order to investigate the relationship of the use of crypto actives with some macroeconomic variables that had been declared by literature and recent studies as the main determinants of CS, between 2013 and 2020.