This last fortnight has seen a slight resurgence in the price of bitcoin and with it, the entire Cryptocurrency market as a whole. Market sentiment moving past the noise of the SEC’s ETF rejection to which it has been so emotionally pegged is a likely factor, which is reflected in this price rise. However, this focus of speculation being principally centred around major financial markets, powerful industry players and regulators has ignored a very large portion of the future for this industry; The developing world.
Developing world markets have time and again demonstrated themselves to be fallible to dictatorial governments, frequent feudal power struggles, volatile economic structures and civil unrest, all of which contribute to an unstable economic landscape. While not limited to, a common result of this cocktail has been hyperinflation and a lack of faith from the populace in the national currency. As a recent case study, we can consider the case of Venezuala.
The Venezuelan Bolivar’s inflation rate reached 83,000% in July and is projected to hit an astronomical 1,000,000% by the end of 2018; figures which start to lose meaning after that many zeros. The real life result of that is a populace that is desperately seeking a means to stabilise the value of their assets and savings that their own currency is no longer able to provide.
Enter Bitcoin. An asset class with a mathematically prescribed inflation schedule and finite supply that can never be hyperinflated. Bitcoin’s capacity to act as a store of value while also possessing the capacity to be a means of exchange has seen Venezuelans taking to the Cryptocurrency market to protect themselves from their own failing economy.
In addition, of what was it’s 32.4 million population in 2014, more than 2 million people have left the country since taking with them whatever assets they can. With the Venezuelan government banning its citizens from owning US Dollars (long considered the closest to a globally accepted currency), Venezuelans are instead investing in Cryptocurrencies as an asset that cannot be seized and functions across borders.
While this is a current example, the idea of developing world populations turning to alternative currencies than their own to stabilise their personal finances is not a new phenomenon. M-pesa, mobile phone credit that could be traded between individuals via rudimentary mobile phones saw widespread adoption throughout the African continent with Kanya leading the way. By the end of 2011, the M-Pesa network has 17million registered users. Over the course of 2014, the transactions in M-pesa for the year amounted to almost half the value of Kenya’s GDP.
It is with some humility that us in Developed World markets who sit and ruminate on the potential for Cryptocurrencies to act as a hedge against Fiat currency markets and ponder their potential in the case of destabilisation of financial markets, could take away some lessons from. A primitive decentralised economy borne out of necessity and imagination which is replicating itself in unstable financial markets around the world.
The decisions of the SEC, major banks and regulators may decide the short to medium term uptake of Cryptocurrencies as well as the resultant market sentiment that drives immediate price movement. However, with the United Nations predicting that by 2030, 85% of the global population would be in developing world countries, we would be foolish to ignore the potential economic implications of a market that large and with such a viable use case for Cryptocurrencies.
Dr Prash P is the CEO of Caleb & Brown, a Cryptocurrency Brokerage who serve to bridge the gap between Cryptocurrencies and the financial services industry. They were awarded Fintech Startup of the Year 2018 by the Stockbroker and Financial Advisor’s Association.