Collapsed Economies Choose Crypto Over Fiat

Digital currencies have been becoming increasingly popular worldwide thanks to their undeniable advantages: privacy, transparency, and accessibility. More and more people choose to use crypto and enjoy the benefits of decentralization. Meanwhile, governments are wary of digital assets as they see them as a potential rival to the national economy. That’s why many countries attempt to regulate cryptos or even ban them altogether. 

However, there are cases when even governments acknowledge that digital currencies will be beneficial to them – this usually happens when a country’s economy collapses. For example, a drop in the value of a national fiat currency naturally increases the demand for crypto in this state. In this case, state authorities might react in different ways, from banning to legalizing digital assets. Let’s review some of the most prominent cases of this happening. 

Lebanon

Lebanon has been suffering from a deep economic crisis for the last couple of years. In the aftermath of the devaluation of the Lebanese pound, citizens started to flock to cryptocurrencies, particularly Bitcoin. The number of investments in BTC has increased dramatically. The main reason for this could be that the population has lost trust in the national currency. What’s interesting is that many Lebanese refugees have turned to crypto as well since they’re deprived of other ways to pay for their needs. The government, however, is not too happy about the adoption of digital currencies and trying to ban crypto transactions in the country. 

Argentina

The popularity of crypto has also been increasing amid the monetary crisis and hyperinflation in Argentina. The trading volume has gone up by over 1,000% since 2018. The residents are accumulating record amounts of digital assets. With the national economy still struggling, state authorities are now approving crypto use in the state. In fact, Argentina wants to become the first Latin American country to launch Bitcoin futures. At this point, coins and tokens, although not nationalized, can be considered as legal tender, or as goods and things in Argentina. The use of cryptocurrency continues to gain popularity in Argentina, both among residents and authorities. 

 Tokenization of agricultural sector assets, such as cows and soybeans, is one of the most unusual applications of digital assets in the country.

Venezuela

Amid the ongoing national crisis, the Venezuelan government has gone so far as to create its own digital currency in an attempt to revive its struggling economy. The token called Petro has been widely used in the country, from paying for goods to giving salaries and pensions in it . However, even the national digital asset was unable to prevent the economy from collapsing. Nonetheless, it is obvious that cryptocurrencies in general have gained great popularity in Venezuela: not only is Petro usage increasing, but also more and more people are reportedly mining Bitcoin. At this point, citizens can use BTC to pay for purchases at special point-of-sale terminals scattered throughout the country. 

Ecuador

Economic uncertainty has also led to Ecuador's citizens turning to cryptocurrencies. The use of digital assets has been gradually increasing there. Many Ecuadarians obtain popular cryptos such as BTC/USD, ETH/USD, LTC/USD, XRP/USD, etc. as well as the local digital currency, Sucre Coin. However, cryptos are strictly regulated in this country despite their popularity. Digital assets cannot be bought or sold, but they can be mined and used for payments. Last year, international humanitarian organization CARE tested crypto vouchers for aid delivery to female communities in Ecuador.

Brazil

Despite the fact that Brazil's economic situation is not as dire as that of the other mentioned countries, inflation is a problem. Throughout the past few years, cryptocurrencies have become increasingly popular in Brazil and have even gained the support of authorities. At this moment, digital assets are already used for fare and store payments across the country. Unfortunately, Brazil is also famous for its crypto pyramid schemes. A bill introduced at the end of last year further regulates the use of digital currencies in the state. The government is also actively working on developing their own CBDC. Right now, Brazil might be the most crypto-friendly country in Latin America. 

Mexico

Mexico seems to be facing an uncertain economic future as well. Bitcoin and other digital assets have also become popular in the country. Contrary to Brazil, the Mexican government has been applying strict regulations to crypto to limit its use. However, in February 2022, a  government official suggested making Bitcoin legal tender in Mexico. The country may not follow El Salvador's lead, but perhaps crypto will become easier to use in the country. It has also been reported that Mexico plans to launch its CBDC in 2024. At the beginning of this year, Coinbase launched a pilot that will allow its users to send crypto remittances to Mexico.

El Salvador

El Salvador's story is unique compared to others. Having faced economic problems in the country, it was the government that decided to turn to crypto. Bitcoin became the official currency of El Salvador in September 2021, thanks to a promotion by president Nayib Bukele. It was the first country to adopt a digital asset as legal tender. The move was intended to boost the economy, but so far it appears that Bitcoin hasn't succeeded. Bukele, however, continues to refuse every offer to get rid of the currency.

Russia

Finally, it is widely known that the Russian economy is on the verge of collapse right now. With the value of the Russian ruble falling dramatically and all the sanctions imposed by Europe and the US, the country might soon find itself in an economic depression. One of the ways out for Russia is to make crypto legal tender which will allow the country to evade practically all the sanctions. Russia already spoke out about its plans on developing a crypto regulation roadmap earlier this year. The current political and economic situation makes it more likely for Russia to become crypto-friendly. After all, the Russian crypto market is already large as its residents own about 12% of the world’s digital assets. A large part of BTC is mined in the country too, with multiple BTC mining farms constantly being created in Siberia where the weather conditions suit the process perfectly. Although crypto is not yet used for payment in the state, some of the Russian NGOs already accept donations in digital currencies. 

Bottom Line

As we can see by the numerous examples, it is natural for people to turn to crypto when their national economies collapse. The responses of the governments can greatly differ though. Some countries impose strict regulations or ban digital assets altogether, treating them as a threat to the national currency. Others, on the contrary, promote and legalize crypto across the state. Anyway, it is obvious that in such cases digital currencies become the needed support as they help people to cope with the financial struggles.