A new study titled “Blockchain Analysis of the Bitcoin Market” has shown that illegal transactions, frauds, and gambling account for only 3% of all onchain Bitcoin trade volume. The study, however, claims that the volume of exchange and trading desk volume – which is mostly speculation – accounts for about 80%.

The National Bureau of Economic Research (NBER), in a report, appears to refute the claim that illegal transactions are the dominant factor in bitcoin trade volumes ( BTC). The authors, Igor Makarov of the London School of Economics, and Antoinette Shoar of the MIT Sloan School of Management explain why earlier studies had likely overestimated the economic value of illegal trading.

The authors cite a 2019 study which concluded that illegal transactions account for more than 46% BTC transactions. According to the authors:

First, Foley et al. Foley et al. (2019) deliberately dropped all exchange-related volume from their calculations because they want to concentrate only on payments for goods or services. This is because trading is the primary activity on the blockchain.

The authors also stated that the Foley study volume estimate is based upon an imputed network illegal clusters. Any cluster that recursively is illegal if it has a majority of transactions with previously identified illegal clusters is illegal.

Bitcoin Volume and Value Drivers

The authors are in agreement that the method is attractive, but they argue that it doesn’t discriminate between real users or short-lived pass through clusters that exist only to obscure tracing.

Makarov, Schoar, and others use a different method than the one used in the 2019 study. They include exchanges, OTC desks (OTC), or trading desk data in computing the non-spurious Bitcoin volumes. Accordingly, their analysis shows that trading desk volume accounts for about 80% of total volume, while other entities account for only a small portion of total volume at the end of 2020.

Although Makarov and Schoar stated in their report they agree with the concern about the pseudonymous nature bitcoin transactions, they insist that it is important to determine the true magnitude of transactions in order to understand the driving forces of bitcoin value.