2018 has been a year defined by economic crisis for many countries. Turkey, Iran, Zimbabwe, and Venezuela have all faced protracted and difficult crisis events which have severely damaged their economies. Each of these countries is experiencing high levels of inflation among other effects. Now, a report by Coin Telegraph suggests that residents in these beleaguered nations are turning more and more to cryptocurrencies as a means of exchange and as a store of value. This, in turn, has led some analysts to predict that bitcoin and other major digital currencies could one day take the place of fiats like the Bolívar, the Lira, or other troubled government-issued currencies. Below, we’ll explore some of the potential causes for these shifts.
Even before bitcoin captured the attention of mainstream investors, the world’s largest cryptocurrency had drawn interest from citizens of Venezuela. According to the report, Venezuelans experiencing capital controls imposed by President Hugo Chavez as far back as 2003 sought a means for relief. Because hyperinflation has been a major factor in the Venezuelan economy for decades now, as soon as bitcoin became available and known, Venezuelans turned to it.
The report indicates that it is unclear exactly how many people in Venezuela have used bitcoin, although it indicates that the country “already [had] at least several hundred bitcoin enthusiasts” as early as October 2014. Unsurprisingly, in the past four years, interest has grown. For the week ending December 17, 2016, for instance, there were bitcoin trades worth more than $100,000; this is not a massive quantity of bitcoin, even at the price point it enjoyed during that time. Nonetheless, it represents growing interest.
Bitcoin Venezuela’s founder Randy Brito explained that “the bitcoin market in Venezuela is indeed big and growing at a fast rate. The absence of exchanges has seemingly gone unnoticed as most bitcoin miners within the country trade informally with people they can trust–basically for reasons of privacy, as they seek to conceal their source of wealth from the public.”
In Venezuela, inflation, capital controls, and an interest in privacy urged investors toward bitcoin. Iran has similarly experienced dramatic inflation on its national currency, the Rial, in recent years. Nonetheless, it is a far less extreme inflation rate than that of Venezuela, likely as a result of Iran’s dealing with U.S.-led sanctions.
In Iran, some of the interest in cryptocurrency may have been fueled by the government itself. When inflation more than doubled in the span of just a few months, the government announced plans over the summer to launch a state-run cryptocurrency. Still, investors in Iran had already taken part in the cryptocurrency market in a big way; Coin Telegraph indicates that the Iranian population had already traded tokens worth $2.5 billion prior to the announcement, even though the government had banned banks dealing in digital currencies.
Zimbabwe abandoned its own national currency in 2009 as a result of hyperinflation. In the past decade, the government has opened up the use of several other fiat currencies, but that has also generated problems including shortages of foreign cash. The latest efforts by the Zimbabwean government to control the problem include capital controls. Like in Venezuela, this drove investors to bitcoin; the currency experienced price increases above the global average at the end of 2017. Primarily due to an interest among investors to obtain currency which was not subject to governmental restrictions, bitcoin has thrived in the Zimbabwean cryptocurrency exchange landscape.
Do these and other examples of economically-troubled countries experiencing a rise in bitcoin suggest that the digital currency is poised to take over on a global scale? Not necessarily, as these nations have unique economic situations. Nonetheless, for some citizens of beleaguered countries, cryptocurrency has proven to be a way to bypass local economic woes.