This is an opinion editorial by Ben Caselin, chief strategist for cryptocurrency exchange MaskEx.
As we navigate the uncharted waters of the digital revolution, bitcoin is increasingly finding its footing in economies facing currency crises. Countries such as Turkey, Lebanon, Nigeria and Argentina are already seeing bitcoin reach, or begin to approach, new all-time price levels, signaling a shift in wealth preservation and financial sovereignty. The forces behind this trend are multiple, including inflationary pressures, the global dominance of the US dollar, and bitcoin’s unique attributes.
A quick Google search of bitcoin against so-called “weaker” emerging market currencies over a five-year time horizon paints a clear picture.
I have shared these observations before in a Twitter thread and discussions on Elon Musk’s platform have been lively on the subject. Some people see this as good and exciting, but it is important to understand that such extreme price action essentially stems from deep currency failures and often involves anguished suffering for people on the ground. Others point out that these falling currencies aren’t really a benchmark for anything substantial, but such thinking only betrays arrogance. It is good to remind ourselves that about 85% of the world’s population lives in emerging markets – a far cry from the reality in these peripheral countries. IS the dominant experience and constitutes the mainstream.
Meaning of ‘weaker’ currencies
To understand the Bitcoin phenomenon in these emerging markets, we must first understand the concept of “weaker” currencies. These are national currencies often characterized by high volatility, repeated devaluations and significant inflation rates. Such sensitivity is generally rooted in unsustainable domestic fiscal policies, including excessive government borrowing and overproduction of the money supply. However, the consequences of such monetary policy are not contained within national borders; they ripple across the global socio-economic landscape, including in the form of migration and worsening inequalities.
Inflation erodes the value of money, reducing purchasing power and fueling economic uncertainty. When combined with external factors such as the implications of the US dollar’s status as a global reserve currency, the impact is even more profound. Despite growing opposition from around the world, with ideas of a “BRICS currency” floating around, the US dollar is still the world’s leading reserve currency and has a significant impact on global economic stability.
The dominance of the greenback means that many emerging markets are intrinsically tied to the US economy. When the US changes interest rates, engages in quantitative easing or Jerome Powell initiates another rate hike, the ripple effects are widely felt. Emerging markets may experience capital outflows, volatility and rising borrowing costs, intensifying economic challenges on the ground.
A digital lifeline
Amid these complexities, bitcoin has gained considerable momentum. The reasons? It offers an escape hatch from economic volatility and a new way to store value. The case of Venezuela, where bitcoin adoption has been making headlines for years now, provides a vivid illustration. Hyperinflation has rendered the Venezuelan bolivar virtually worthless, pushing its citizens to bitcoin as well as USD-pegged stablecoins for everyday transactions and wealth storage.
However, bitcoin’s value extends beyond its role as an inflation hedge. Its permissionless, peer-to-peer nature is also a game changer. Bitcoin is decentralized and requires no intermediaries for transactions, making it accessible to anyone, anywhere, anytime. This characteristic is particularly attractive in regions where banking services are limited or non-existent, promoting financial inclusion.
For migrant workers sending remittances home, bitcoin – using the Lightning Network – can make the process faster, cheaper and more efficient. It bypasses traditional banking systems and expatriate remittance service providers, which often charge exorbitant fees and are plagued by slow transaction times. The use of bitcoins for migrant remittances can stimulate economic activity in these emerging markets, contributing to its growth and development.
Beyond Speculation: A Tool for Financial Empowerment and Stability
Bitcoin’s growing acceptance in developing economies serves as a testament to its potential to transform weak currency environments and create more resilient, people-centric financial ecosystems. These trends point to an interesting paradox: As developed economies grapple with the question of Bitcoin’s role, driven in part by a speculative bias born of the luxury of excess capital, people in emerging markets are already embracing its potential to redefine their economic landscapes, precisely for the reason it was created in the first place.
However, Bitcoin’s journey in these emerging markets has only just begun. Challenges remain, including those around regulatory uncertainties, digital literacy and technology infrastructure. But if anything, bitcoin’s growth in these economies means that when faced with adversity, Bitcoin-driven innovation has the potential to chart new paths to prosperity.
In essence, Bitcoin’s growing influence in emerging economies underscores its versatility, not just as a speculative asset, but as a tool for financial empowerment and stability. The interplay between inflation, the global dominance of the US dollar and the attributes of Bitcoin paint a compelling story of how the future of the global economy could be reshaped by the digital currency revolution.
This is a guest post by Ben Caselin. Opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.