Abstract
This thesis comprises three essays focusing on Cryptocurrencies and FinTech.The first essay investigates the determinants of United States household investment in crypto assets, drawing on data from the 2021 National Financial Capability Study. The findings indicate that households exhibiting high self-assessed financial knowledge, advanced digital literacy, low-risk aversion, and strong fraud aversion have a higher propensity to invest in cryptocurrencies. Interestingly, a household’s objective financial knowledge appears to have no significant effect on their investment decisions in this domain. The study also reveals evidence of behavioural biases, particularly overconfidence and myopia (short-termism), in the U.S. cryptocurrency market. Moreover, households guided by financial advisors tend to avoid cryptocurrency investments, while those influenced by social media are more inclined to invest in them.
In the second one, we uncover the macroeconomic (financial) drivers of cryptocurrency adoption and usage from a global perspective. Utilizing data on cryptocurrency adoption from a diverse panel of 118 countries, we examine the empirical relevance of a wide set of intuitively plausible macro-level variables in enabling cryptocurrency adoption. We identify decentralized finance (DeFi), inflation volatility, stock market volatility, GDP per capita, and security fragility as the key drivers of global cryptocurrency adoption, with DeFi having the largest impact. More importantly, we show that at least a part of the increase in cryptocurrency adoption is driven by real economic factors, such as financial exclusion and lack of trust in the banking system, via increased DeFi, suggesting that cryptocurrency could create long-term real economic value, especially in countries with high financially excluded populations and lower bank trust. Also, we find that inflation and stock market volatility induce investors to use cryptocurrencies as a hedge, thus confirming the observed hikes in the adoption of cryptocurrency in the wake of the recent increase in global macroeconomic uncertainty, largely caused by the coronavirus pandemic. Moreover, our research uncovers significant variations in cryptocurrency adoption across different income levels and regions, underlining the importance of nuanced policy-making that reflects this heterogeneity.
The third essay examines the impact of fintech credit (as an alternative financing source) on MSME financing. Using a novel data set (of MSME financing gap) from the International Finance Cooperation (IFC, 2019) and the fintech credit index from the World Bank, we empirically quantify the extent to which fintech credit closes the MSME financing gap in developing countries. We find that fintech credit reduces the MSMEs’ financing gap in developing countries by about 20 percent. Also, we present evidence that technology and innovations mediate the effect of fintech credit on the MSME financing gap in developing countries. More innovative and technology-leveraging firms are better positioned to use fintech credit to reduce their financing gaps. Furthermore, we use data on bank loans to SMEs in OECD countries to study the substitutability or complementarity of fintech and bank credit. We find that SMEs' demand for bank loans is reduced by 0.029 percent for a percentage increase in fintech credit. To further highlight this finding, we disentangle the bank loans to SMEs into short-term and long-term loans. We find that the substitution occurs only in the short-term loans, not the long-term ones. This suggests that in OECD countries, fintech credit enables SMEs to diversify their demand for credit, thus reducing the exposure to banks' credit shocks.
| Date of Award | 9 Oct 2024 |
|---|---|
| Original language | English |
| Awarding Institution |
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| Supervisor | Xuan Song TAM (Supervisor) & Vikas KAKKAR (Supervisor) |
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