Numerous large countries aroundย theย globe, including Pakistan and Nigeria, suffer currency turmoil. And, regardlessย of official efforts to curb cryptocurrency activity, there are signs their citizens are turning to cryptocurrency assets as a hedge, reveals Noelle Acheson.
With the Unitedย States mired in political stasis while other regions build cryptocurrency frameworks, itโs worth looking at the evolution of, and outlook for, on-the-ground demand for cryptocurrency assets. This is getting increasingly relevant as numerous large countries struggle with skyrocketing inflation, shaky currencies and autocratic control over financial access, and as populations becomeย increasingly crypto-aware and a lack of trust in centralized institutions grows.
Pastย week, the Government of Pakistan (the fifth largest country in the world in terms of population, with over 239 Million inhabitants) was informed to have stated that digitalย currencies โwill never be legalizedโ in Pakistan, toย beย ableย to avoid FATF penalties.
Noelle Acheson is the previous head of research at CoinDesk and Genesis Trading. Thisย post is excerpted from her Cryptocurrency Is Macro Now newsletter, which concentratesย on the overlap betwixt the shifting cryptocurrency and macro landscapes. These opinions are hers, and nothing she writes should be taken as financing advice.
This may sound on the surface like an overreaction to FATFโs cryptocurrency stance โ last Thursday, the organizationโs president wasย releasedย a letter titled โAn end to the lawless cryptocurrency spaceโ which urges cryptocurrency regulation rather than a total ban.
Then onceย more, Pakistan has a somewhat tense relationship with the FATF, and just last October was taken off its โgrey listโ (which labels certain countries as having โdeficienciesโ in their AML controls, which asย aย result can lead to limited participation in worldwide finance).
Itโs likewise not hard to see the hand of the International Monetary Fund. Pakistan is asย ofย now in talks with the organization regarding a bailout package, although negotiations seem stalled and concern about the countryโs political and economic issues is starting to affect neighboring countries. The IMF has not been shy about its unease with cryptocurrency markets, and severalย months ago, reports surfaced that it had applied crypto-suppression conditions to negotiations with Argentina.
Still cryptocurrency use in Pakistan is nevertheless active, as people are reportedly converting their salaries into cryptoย stablecoins to prevent currency erosion. The rupee hasย decreased greaterย than 20 percent against the Unitedย States dollar year-to-date, greaterย than 30 percent inย theย previous year. Inย theย meantime, Bitcoin in rupee terms is up 103 percent so far in 2023 (vs 63 percent in Unitedย States dollar terms). Itโs probably not a coincidence that a 2022 report from forensics company Chainalysis placed Pakistan Sixth in terms of worldwide cryptocurrency adoption.
Thereย is likewise Nigeria (the Sixth largest country in the world, with over 218 Million people), which is likely to devalue its currency once the new president is sworn in, in a bid to alleviate trade imbalances and dollar shortages. The sub-Saharan nation ranked 11th in Chainalysisโ worldwide cryptocurrency adoption ranking, and reportsย by Google Trends, looking back inย theย previous 90 days, Nigeria is the top-ranking country in terms of searches for the term โcryptoโ and Second in terms of searches for the term โbitcoin.โ
Turkey is the 18th largest country in the world in terms of population, with greaterย than 85 Million inhabitants. Pastย week its currency hit a new record low as markets brace for Erdoganโs likely re-election in the runoffs on May 28. A recent chart by cryptocurrencyย market data company Kaiko shows the spike in cryptocurrency activity based in lira, now itโsย worthย notingย that higher than euro-based activity. Turkey was 12th in Chainalysisโ 2022 cryptocurrency adoption ranking โ currency woes and the pressing must hedge and diversify are likely to push it up the list.
(Kaiko Research)
An unexpected entry into my โwatch the adoptionโ list is Japan โ the 11th largest country with over 124 Million people, and the third richest in terms of nominal GDP. James Butterfill, head of research at CoinShares, shared a chart pastย week that plotted growth in spot volumes on cryptocurrency exchanges. The leader? Japan, with the Second highest average daily volume (after the U.S.) and easily the highest percentage growth ( approximately 55 percent year-to-date).
(Via Twitter user @jbutterfill)
This mayย be largely for speculation, since Japan has low inflation and its currency is relatively stable. Or, itย canย potentially be a sign of investors bracing for higher inflation and currency instability. Higher inflation would possiblyย likely trigger price hikes, onย theย otherย hand, which should strengthen the yen, so itโs not clear what Bitcoinย (BTC) would be a hedge for in Japan.
There are numerous other examples of citizens aroundย theย globe turning to cryptocurrency to hedge against local currency volatility and debasement โ Ukraine, Argentina and Lebanon are just severalย that come to mind. Numerous struggle with the absence of reliable onramps and with the difficulty of custody. Onย theย otherย hand, few are even remotely concerned about the Unitedย States regulatory hostility.
All this serves as a reminder that the Unitedย States may have the largest financial market in the world, but cryptocurrenciesย purpose goes well beyond the speculation that financial markets serve. Whatโs more, numerous developing economies are accustomed to regulatoryย authorities overstepping their bounds in terms of limiting financial freedom, and thus their citizens find the decentralized nature of numerous cryptocurrency assets easier toย comprehend and appreciate than do individuals used to more open regimes.
Throw in the increasing probability of wholeย lotย of currency turmoil ahead in emerging countriesโ economies, inflationary pressures and a strong dollar, and, asย aย result, the possibilityย of political turmoil, and you can see how the โinsuranceโ and โhedgeโ qualities of cryptocurrency assets such as Bitcoin and cryptoย stablecoins become even more compelling. Monetary liquidity headwinds couldย be wholeย lotย of, but they are not the whole cryptocurrencyย market story.
