In this article, we explain why are the world’s largest emerging markets turning to cryptocurrency
With the United States locked in a political stalemate while other nations construct crypto frameworks, it’s worth considering the evolution and prospects for on-the-ground demand for crypto assets. This is becoming increasingly important as many big nations deal with surging inflation, weak currencies, and dictatorial control over financial access, and as populations become more crypto-aware and distrust in centralized institutions develops. Last week, the government of Pakistan (the world’s fifth most populous country, with over 239 million people) was reported to have stated that cryptocurrencies “will never be legalized” in Pakistan to avoid FATF sanctions.
This may appear to be an overreaction to the FATF’s crypto stance – last Thursday, the organization’s president wrote a letter headed “An end to the lawless crypto space” urging crypto regulation rather than an outright prohibition. However, Pakistan has a strained relationship with the FATF and was recently removed from its “grey list” (which designates some nations as having “deficiencies” in their AML procedures, which can lead to limited involvement in global banking). It’s also not difficult to discern the International Monetary Fund’s hand at work. Pakistan is now in talks with the organization over a rescue package, but negotiations appear to be delayed, and anxiety about the country’s political and economic problems is beginning to influence neighboring countries. The IMF has not been shy about expressing its concerns about crypto markets, and rumors circulated a few months ago that it had imposed crypto-suppression requirements on discussions with Argentina.
Despite this, people in Pakistan are transferring their paychecks into stablecoins to prevent currency depreciation. The rupee has lost more than 20% of its value versus the US dollar this year, and more than 30% in the last year. Meanwhile, BTC is up 103% in rupee terms so far in 2023 (vs 63% in US $ terms). It’s certainly no accident that Pakistan was ranked sixth in the world in terms of crypto usage in 2022 research from forensics firm Chainalysis. Nigeria (the world’s sixth biggest country, with over 218 million people) is likewise likely to weaken its currency after the new president is inaugurated, to address trade imbalances and dollar shortages. According to Google Trends, going back 90 days, Nigeria is the top-ranking country in terms of searches for the phrase “crypto” and second in terms of searches for the term “Bitcoin.”
Turkey is the world’s 18th most populous country, with a population of more than 85 million people. As markets prepare for Erdogan’s expected re-election in the May 28 runoffs, its currency reached a new low last week. According to a new graphic from crypto market monitoring provider Kaiko, lira-based crypto activity is currently significantly greater than euro-based activity. Turkey was ranked 12th in Chainalysis’ 2022 crypto adoption rating, but currency troubles and the immediate need to hedge and diversify are expected to propel it higher. Japan, the 11th biggest nation with almost 124 million inhabitants and the third wealthiest in terms of nominal GDP is a surprising addition to my “watch the adoption” list. Last week, CoinShares’ head of research, James Butterfill, presented a graphic that charted the rise in spot volumes on crypto exchanges. Japan is the clear leader, with the second-greatest average daily volume (after the United States) and the highest percentage growth (about 55% year to date).
Because Japan has minimal inflation and a reasonably stable currency, this might be mostly for speculation. It might also be a warning that investors are ready for more inflation and currency volatility. However, more inflation would almost certainly result in rate rises, which would boost the yen, so it’s unclear what Bitcoin would be used for in Japan. There are several additional examples of individuals throughout the world using cryptocurrency to hedge against local currency volatility and depreciation – Ukraine, Argentina, and Lebanon are just a few examples. Many people suffer from the lack of dependable onramps and the difficulties of obtaining custody. However, few are concerned about the regulatory antagonism in the United States.
All of this serves as a reminder that, while the United States has the world’s largest financial market, the purpose of cryptocurrency extends much beyond the speculation that financial markets provide. Furthermore, because many developing nations are accustomed to authorities overstepping their limits when it comes to limiting financial freedom, their populace finds the decentralized structure of many crypto assets simpler to grasp and appreciate than persons habituated to more open regimes. When you consider the increasing likelihood of significant currency turmoil in emerging economies, inflationary pressures, and a strong dollar, as well as the likelihood of political turmoil, you can see how the “insurance” and “hedge” qualities of crypto assets like BTC and stablecoins become even more appealing. Monetary liquidity challenges are considerable, but they do not tell the entire story of the crypto market.
