The Rising Role of Cryptocurrencies In Inflation-Ridden Regions
Even as crypto markets endure an extended bearish streak over the past year, disappointing investors the world over, in certain parts of the global south, fresh converts to the cult of Bitcoin are staying firm with their new found faith.
From the inflation-ridden hotbeds of Latin America, to the tropical beaches of Sri Lanka, cryptocurrencies are no longer mere instruments of mindless speculation, but a lifeline for local communities and businesses alike.
In Argentina, South America’s second largest economy, inflation is all but set to hit 100% in the coming weeks, destroying the worth of the Argentinian Peso, and with it the savings and purchasing power of its citizens.
Having witnessed this scenario unfold many times in recent decades, most Argentinians were well prepared, with a bulk of their savings in other currencies, and as of late, even cryptocurrencies.
Falling Values Not A Concern
Crypto penetration in Argentina now stands at 12%, double that of Brazil and Mexico, and ranking 13th in the world when it comes to overall adoption.
While major cryptocurrencies have more than halved in value this past year, the proponents of crypto in these countries are least bit worried, because their official currencies have registered much steeper declines over the same period.
With the Argentine Peso down by 70% YTD, the Sri Lankan Rupee by 80%, and many more steep declines during the year, Bitcoin’s 66% drop YTD seems a lot better in comparison. For people who’ve lost all faith in their Federal Government and central banks, nothing about this steep decline, or the lack of regulations surrounding these currencies is unnerving.
While Bitcoin, Ethereum, and the broader crypto ecosystem is expected to recover following this temporary lull, the Argentine Peso on the other hand is often compared to a melting ice cream. This means the longer you hold onto it, the more you are going to lose, with no hopes of recovering.
Growing Remittances
A key segment where crypto has long held utility and continues to see traction is with cross-border payments and remittances. Free from the often archaic rules, red tape, and inefficiencies that continue to plague the legacy systems, remittances through Bitcoin, or any other Stablecoin has been witnessing growing adoption over the past few years.
This trend is all the more pronounced in countries experiencing hyperinflation, a falling currency, or an uncertain macro environment. With most such banks and countries often seizing dollar remittances outright, or instituting capital controls, sending remittances to families is a lot safer when done via cryptocurrencies, despite their volatility.
Stablecoins For The Win
While investors who buy cryptocurrency have long flocked to the bellwethers such as Bitcoin, Ethereum, or any of the 17,000 altcoins with the hopes of striking it rich, the volatility over the past year, and the so called ‘Crypto Winter’ has driven a surge in the adoption of stablecoins.
Stablecoins are essentially cryptocurrencies that are pegged to a fiat currency, such as the US dollar, and are thus, far less volatile compared to other digital currencies. This has since helped people in countries such as Venezuela, Argentina, Lebanon, and Sri Lanka anonymously save their savings in US dollars.
This hasn’t just helped in facilitating trade during periods of hyperinflation, but has quelled any residual fears that the locals might still harbor against crypto. This, ofcourse, comes with its own share of risks, as was seen with the spectacular implosion of TerraUSD less than a year ago.
Final Words
As crypto went through its first bearish cycle since its inception, the mainstream adoption has only continued to grow by leaps and bounds. As the tide starts to turn in the coming months, the long-term future of cryptocurrencies will be driven by actual utility and value creation, unlike the speculative frenzy that was witnessed thus far.
All of this makes it a great time to be crypto enthusiast, with plenty of new developments, disruptions, and innovations headed our way.
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