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September 7, 2021 02:00 pm

Sometimes Dismissed as a Fad in Advanced Economies, Crypto Holds More Appeal in Countries With a History of Financial Instability

In advanced economies, cryptocurrencies are viewed by many in the financial world with suspicion -- the domain of zealous "crypto bros" and a speculative and highly volatile fad that can only end badly. Regulators in Europe and the US have issued stark warnings about the dangers of trading crypto. But in the developing world, there are signs that crypto is quietly building deeper roots. Especially in countries which have a history of financial instability or where the barriers to accessing traditional financial products such as bank accounts are high, cryptocurrency use is fast becoming a fact of daily life. Financial Times: "While everyone was paying attention to [Tesla chief executive] Elon Musk's tweets, and which institutional investor or CEO was saying what they thought about bitcoin, there was this entire story unravelling in emerging markets around the world that's really powerful," says Kim Grauer, director of research at Chainalysis, a leading data company in the sector. "There's a massive crypto footprint in many of these countries ... [and] a massive amount of entrepreneurial opportunity." Chainalysis ranks Vietnam first for crypto adoption worldwide -- one of 19 emerging and frontier markets in its top 20, with only the US among advanced economies making an appearance at number eight in 2021. "It's very striking this year, [adoption] is a story of emerging and frontier markets," adds Grauer. Separate data from UsefulTulips.org, tracking bitcoin transactions on the world's two biggest peer-to-peer crypto trading platforms, show that in the past few weeks, sub-Saharan Africa has overtaken North America to become the geographical region with the highest volume of this kind of crypto activity. [...] Emerging markets are fertile ground for cryptocurrencies, often because their own are failing to do their job. As a store of value, as a means of exchange and as a unit of account, national currencies in some developing countries too often fall short. Unpredictable inflation and fast-moving exchange rates, clunky and expensive banking systems, financial restrictions and regulatory uncertainty, especially the existence or threat of capital controls, all undermine their appeal. Nigeria, Africa's most populous country, is a case in point. Its impatient, youthful population has to contend daily with high unemployment, the vagaries of black market currency exchanges and capital controls. As the price of oil, the country's main export, dropped during the pandemic and further squeezed dollar supply, many businesses were unable to pay foreign suppliers and lenders, almost leading to the default of a World Bank-backed power plant that provides a tenth of Nigeria's electricity. For individuals sending or receiving remittances or billing customers, the lack of dollars is a constant headache.

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