Will the Bitcoin Revolution Surface in Emerging Markets?
by Dominik Stroukal — Economic Expert at SatoshiLabs and External contributor to Trezor Blog
Most likely. For most of us in the richer part of the world, Bitcoin and other cryptocurrencies are still just a toy. Of course, we know very well how important it is to have sound money. For us, however, Bitcoin is still Plan B, an asset we hope to rely on in the event of the collapse of the current financial system, or should we need to flee underground from the authorities.
In emerging economies, the financial world actually does collapse from time to time, and evading the authorities is the only way to live decently in society. In some cases, it’s necessary just to survive.
Emerging Issues
The Turkish lira is definitely not one of the most popular currencies in the world. It has weakened against the US dollar by an incredible 85% since the beginning of 2008. The central bank intervenes heavily, but it has not proven very successful in calming the situation. Currency depreciation can be combated by raising rates, but would damage the economy. In Turkey, they have a choice to make.
Nearby Lebanon went bankrupt. The deadly explosion of a factory in the port of its capital, Beirut, caused incalculable damage, but six months earlier it was already strained by gigantic debt, high interest rates and a coronavirus which the whole country had to carry on its shoulders. Although the Lebanese pound has been pegged to the US dollar since 1997, the official exchange rate failed to stay fixed, with the pound having lost more than half its value, a crisis compounded by the falling dollar.
From Beirut to Abuja, the capital of Nigeria, it takes exactly 100 hours by car. Africa’s most populous country has the third youngest population in the world, after India and China, and you can feel it. Telecommunications make up 10% of the country’s GDP and the former capital of Lagos has become the Silicon Valley of Africa. Compared to Lebanon, Nigeria has been doing well economically for a long time. Relatively, of course. Despite all the growth, Nigeria also has problems, especially monetary. The last time it experienced annual inflation below 5% was in 1972. Just to give you an idea, this means that approximately 90% of Nigeria’s population have not experienced inflation below 5% within their lifetime.
The situation is similar in another beautiful country on the other side of Africa, in Kenya. Kenya has experienced inflation below five percent for only four years since 1972 and, like Nigeria, often experiences double-digit inflation.
Even on other continents, the savings of entire populations are in danger. There is not much need to talk about a socialist paradise in Venezuela. The notoriously bankrupt Argentina is in trouble again, which would probably be the case even without the new coronavirus. There are also problems with high inflation in populous Pakistan or in Ukraine. And finally, prices continue to rise even in the home country of your Trezor, the Czech Republic.
The Search for Security
These aren’t just economic fun facts. These are real problems faced by real people. And the problems stretch further than just making your travels more expensive. In a globalized world, things are cheap because they are bought and sold all over. If you buy stuff sold in a foreign currency while yours weakens, things become more expensive for you.
It is best seen in Bitcoin, of course. If you were one of the unlucky few who bought Bitcoin at the end of 2017 for the all-time highest price of around $20,000, then the drop in price to the current $12,000 may not actually bother you too much, if you were to live in Turkey. While Bitcoin has evaporated 40% for American buyers, you’d have 15% more in Turkish lira. Given the high price growth in Turkey, this would not be enough to maintain the value of your savings, but you would be much, much better off than a neighbor who did not buy Bitcoin.
Of course, if you buy US dollars instead, you’re even better off. But not everyone can access them and, if they do, it’s rarely for the official price. Neighboring Syria knows this. Through a combination of sanctions, coronavirus, the crisis in Lebanon and, of course, the war, it has entered a deep recession. Dollars cannot be bought easily and, even if they can, they fetch a price much higher than officially stated. The situation in Syria is so bad that they are even talking about the possibility of switching its pound for the falling Turkish lira.
Unfortunately, next to nobody wants to sell you Bitcoin for your Syrian pounds or Turkish liras, so the purchase will, sooner or later, be done through US dollars, if they are available. That is why we do not see such a massive flight to Bitcoin in countries with collapsing currencies as we would expect. Nor are they turning to gold, even, or other preservers of value.
This largely explains why we don’t see more cryptocurrencies in emerging markets yet, but there are many more reasons. Especially in countries like Venezuela, where people are becoming poorer every day, it is naive to imagine buying Bitcoin on a large scale (although some do). And still some people do not even know about Bitcoin’s existence. Others do not trust it.
The Future Belongs to Bitcoin
For those of us who live in the developed world, this may seem unimaginable. Our central banks often have the opposite problem — they fail to devalue money even at the rate they want. For example, between the 2009 crisis and 2019, the European Central Bank achieved an average inflation of 1.26% and rose above 2% in just two years. The ECB is failing so badly at devaluing the euro, that it has had to embark on huge quantitative easing, negative interest rates, and even to change the target from 2% to less than (but close to) 2%. It has an infinite number of costs everywhere possible, but still — money here remains relatively stable compared to emerging markets.
For us, too, Bitcoin’s monetary policy seems to have come from another world, but we do not have to face the horrors of what a centralized system can do, or at least not that often.
For most of us, Bitcoin is a brilliant economic experiment, the technological innovation of the century, an interesting investment, something we can play with, the easiest means of access to markets that were previously only accessible to those with Wall Street ties.
Some of us see Bitcoin primarily as a Plan B for if (or when) our financial system collapses. And it is slowly collapsing. But there are hundreds of millions of people in the world living in countries whose economies have already collapsed. 689 million people live in the countries listed in the first chapter of this article alone. Well, 678 excluding the Czech Republic.
Even with notoriously bad currencies, however, periods of high inflation alternate with periods of relative stability. It is important that people confronted with the bad policies set by their governments and central banks have somewhere to escape to when the situation stabilizes, when they begin to fear that things will get worse again. Historically, people have sought security and store of value in precious metals and precious stones, but times have changed.
And the change has been significant. We are more digitalized. Automated. Faster. After all, even precious metals and precious stones are nowadays usually not owned physically, but digitally. Bitcoin is tailored to the future. Everything you possess can be held on a piece of paper (or better yet, metal) and kept safe on a Trezor so you can access your finances anywhere in the world, without anyone asking you for anything.
Emerge!
It is no coincidence that we are talking about emerging economies here. Not only Nigeria, but others too have an extremely young population that is more open to new technologies. Plus, they have something to run from — inflation. And, sometimes, cruel governments. While just a few years ago we had to run on foot, today we can run from the consequences of the actions of our governments and central banks from the comfort of our mobile phones. And almost everyone in the emerging markets has a mobile phone.
We are already seeing the seeds of the future Bitcoin revolution. In September 2019, out of all the countries in the world, Bitcoin was most googled in Nigeria, followed by the Republic of South Africa. Venezuela sat just outside the top ten.
We all know very well that we, in developed economies, do not have a problem with access to traditional financial services, while a large part of these emerging markets is still unbanked. It is not just about money transfers, but also about keeping savings in digital form, about making it more difficult to confiscate what we have, and also just the very simple fact that anyone can simply become a day trader and chase candle charts on their monitor. Bitcoin is democratic and does not care if it is used in a non-democratic regime. Anyone can still participate.
It has its problems, of course. Typically scams. The growing interest in the space and number of less experienced users are attracting scammers who are pulling in millions of dollars from their victims. Some countries have already gone through great waves of scams and learned their lesson, while others are, unfortunately, probably still waiting for it.
Even if this discourages some, it will only take a little more time for the Bitcoin revolution to unfold in emerging markets. They have everything they need for it. Demand for Bitcoin services exists, as does supply. Now, it is only necessary to pair that demand with the supply. To some extent, it will give rise to itself, but maybe we should think about how we can support the trend. People from emerging economies deserve it and depend on it.
