2021 Global Cryptocurrency Adoption Index: Transformation between Large and Emerging Economies

2021 is an extraordinary year for the cryptocurrency industry. During this year, the cryptocurrency market has experienced tremendous growth, and the cryptocurrency/blockchain industry has also gained widespread attention, thanks to the peer-to-peer and low transaction fee characteristics of cryptocurrency. The adoption of cryptocurrency in some emerging market countries has also increased significantly.

According to Chainalysis’ Global Crypto Adoption Index, we can objectively measure which countries (and citizens) have the highest cryptocurrency adoption rates. Which countries are making good progress in adopting cryptocurrencies into the mainstream economy? The results may not be what you think, because it is not necessarily the economic superpowers that are leading the way.

Image: Global Cryptocurrency Adoption Index

How the Global Crypto Adoption Index was created

The Global Crypto Adoption Index is composed of three indicators, ranking all 154 countries according to each of the three indicators, taking the average of each country's ranking in all three indicators, and then normalizing the final number to a range of 0 to 1, giving each country a score that determines the overall ranking. The closer the country's final score is to 1, the higher its ranking.

Value of on-chain cryptocurrencies received, weighted by purchasing power parity (PPP) per capita

The goal of this metric is to rank each country by overall cryptocurrency activity, but weight the rankings to favor countries where that amount is more important, based on the wealth of the average person and the general value of the country’s currency.

The indicator is calculated by estimating the total amount of cryptocurrency received by the country and weighting the on-chain value by purchasing power per capita, which is a measure of the wealth of each resident in the country. The higher the ratio of on-chain value received to purchasing power parity per capita, the higher the ranking, meaning that if two countries receive the same amount of cryptocurrency, the country with lower per capita purchasing power parity will be ranked higher.

On-chain retail value transferred, weighted by purchasing power parity per capita

The goal of this indicator is to measure the activity of non-professional individual cryptocurrency users, based on the ratio of the cryptocurrency they trade to the wealth of the average person. Individual cryptocurrency activity is estimated by measuring the amount of cryptocurrency moved in retail transactions, designated as any transaction of less than $10,000 worth of cryptocurrency. Each country is then ranked based on this indicator, but it is weighted to favor countries with lower per capita purchasing power parity.

Peer-to-peer (P2P) exchange trading volume, weighted by purchasing power parity per capita and number of internet users

Unlike the other two metrics, P2P trading volume is not represented on the blockchain, but still accounts for a large percentage of all cryptocurrency activity, especially in emerging markets. Countries are ranked based on P2P trade volume and weighted to favor countries with lower per capita purchasing power parity and fewer internet users, with the goal of highlighting countries where more residents spend a larger share of their overall wealth on P2P cryptocurrency transactions.

Chainalysis’ tool doesn’t capture P2P volume because it’s not recorded on the blockchain — we can only see funds entering or leaving P2P platforms. Instead, they rely on data provided by the two largest P2P platforms — LocalBitcoins and Paxful — to calculate P2P volume in each country. While this means not all P2P value is captured, the two exchanges are popular enough that their metrics can serve as an overall approximation. This part of the formula may need to be updated in the future to account for the rise of other P2P platforms, such as the one offered by Binance, which is growing in popularity.

How has the indicator's methodology changed in 2021?

The biggest change to the indicator’s methodology this year is the removal of the fourth indicator that contributed to each country’s overall ranking for 2020: the number of deposits by country, weighted by the number of internet users.

It was initially used as a metric to determine which countries’ residents conducted the most cryptocurrency transactions, as this would capture the number of individuals using cryptocurrency and promote countries whose residents conduct more transactions per user. However, while centralized services such as cryptocurrency deposits to exchanges appear on-chain, any transactions within these services (e.g., trades within exchanges) are not captured on-chain, but only appear in the order books of these services, which we have limited or even no access to in some cases.

However, this is not the case with DeFi. Transactions made by users of DeFi protocols are displayed on-chain because no centralized service holds custody of the user's assets. This tilts our ranking towards countries with relatively more DeFi users. Therefore, the team decided to eliminate it.

2021 Global Crypto Adoption Index Top 20

The table below shows the top 20 countries in the 2021 Global Crypto Adoption Index, along with their rankings in the three component indicators that make up the overall ranking.

The countries in the ranking from high to low are: Vietnam, India, Pakistan, Ukraine, Kenya, Nigeria, Venezuela, the United States, Togo (a West African country), Argentina, Colombia, Thailand, China, Brazil, the Philippines, South Africa, Ghana, Russia, Tanzania, and Afghanistan.

Global cryptocurrency adoption surges

Data shows that residents of more and more countries around the world are beginning to get involved in cryptocurrencies, leading to an increase in the existing adoption rate of cryptocurrencies. In the figure below, Chainalysis adds up the index scores of all 154 countries/regions in each quarter from the second quarter of 2019 to date to derive the global cryptocurrency adoption rate.

As can be seen from the picture, by the end of the second quarter of 2020, after a period of small growth, the total global adoption rate was 2.5. By the end of the second quarter of 2021, the total global adoption rate was 24, indicating that the global adoption rate has increased by more than 2,300% since the third quarter of 2019 and by more than 881% last year. Research shows that the reasons for this increased adoption vary around the world - in emerging markets, many people turn to cryptocurrencies to preserve their savings when currencies depreciate, send and receive remittances, and conduct commercial transactions, while the adoption of cryptocurrencies in North America, Western Europe and East Asia was mainly driven by institutional investment last year. In a year when cryptocurrency prices have risen sharply, each region's respective reasons for owning cryptocurrencies seem compelling.

Adoption in emerging markets continues to grow, supported by P2P platforms

Several emerging market countries, including Kenya, Nigeria, Vietnam, and Venezuela, rank high in the index, largely due to their large trading volumes on peer-to-peer (P2P) platforms after adjusting for per capita purchasing power parity and internet use in their population. Our interviews with experts in these countries revealed that many residents use P2P cryptocurrency exchanges as their primary on-ramp into cryptocurrencies, often because they do not have access to centralized exchanges.

Knowing this, it's not surprising that regions with many emerging markets account for a large portion of web traffic to P2P service sites.

Central and South Asia, Latin America, and Africa have more traffic (number of uses) on P2P platforms than regions with larger economies such as Western Europe and East Asia.

Many emerging markets have faced significant currency devaluations, prompting residents to purchase cryptocurrencies on P2P platforms to preserve their savings. Others in these sectors use cryptocurrencies for international transactions, for personal remittances or for business purposes, such as purchasing goods for import and sale. Many emerging markets here restrict the amount of national currency that residents can transfer out of the country. Cryptocurrencies offer these residents a way to circumvent these restrictions so that they can meet their financial needs.

This has led to an interesting dynamic where P2P platforms have a larger share of total trading volume, which is made up of smaller, retail-sized cryptocurrencies worth less than $10,000.

Image: Remittance payments and personal or commercial transactions by merchants in emerging markets are smaller than those by professional traders or institutional investors

China and the United States fall in the rankings

Last year, China ranked fourth in the Global Adoption Index, while the U.S. ranked sixth. This year, the U.S. ranks eighth and China ranks 13th. The biggest reason for both countries’ declines is their sharp drop in rankings for P2P transaction volume weighted by internet-using population—China fell from 53rd to 155th in this regard, while the U.S. fell from 16th to 109th.

Further analysis shows how much P2P trading volume has fallen in these two countries compared to global trading volume. This is demonstrated in the index chart below, which shows the relative change in P2P trading volume in the United States and China compared to the global total.

P2P volumes in the United States and China were roughly on par with the global total until they began to diverge around June 2020. By then, P2P volumes in the United States and China were shrinking as the rest of the world grew. Although all three metrics have fallen sharply since March 2021, the declines in the United States and China have been greater and remain below the global total. This activity may reflect the increasing professionalization and institutionalization of cryptocurrency trading in the United States, while in China it may be related to the government's ongoing crackdown on cryptocurrency trading.

What will drive the next wave of adoption?

The data shows that growing transaction volumes on centralized services and the explosive growth of DeFi are driving cryptocurrency use in developed countries and countries with significant adoption, while P2P platforms are driving new adoption in emerging markets. The clear conclusion is that cryptocurrency adoption has skyrocketed over the past 12 months, and the differences in the countries contributing to this show that cryptocurrency is a truly global phenomenon.