Bitcoin proved its usage as a store of value, as panicked Iranians rushed into the leading cryptocurrency, as a shield against hyperinflation. The Iranian rial crashed to a head-spinning exchange rate of 50,000 to one US dollar after the expected plans to discontinue the nuclear deal with the USA. The regional crisis had immediate economic repercussions.
Any crisis of similar proportions, including bank runs and economic crashes, can now push new panic buyers into Bitcoin, believes Weiss Ratings cryptocurrency analyst, Juan M. Villaverde.
“You can expect the same to happen – in much bigger amounts – in the wake of any banking or monetary crisis in the future,” Villaverde predicted. “In the past, when corrupt governments devalued their local currency or seized assets from citizens, investors ran to the U.S. dollar or gold. Today, many are moving into cryptocurrencies, where their money sits on a global distributed ledger that no central bank or government can touch.”
Because Bitcoin, and other crypto coins, are borderless, they are much easier to acquire as a hedge against risk, compared to other assets seen as a safe haven in a crisis. Hyperinflation has triggered interest for Bitcoin in Zimbabwe, as well as Venezuela.
Despite the recent illegality of Bitcoin in Iran, the community has not given up. There are four full nodes in the country, enough to verify and broadcast transactions.
Bitcoin will be volatile, believes Villaverde, but for Iranians, their own currency, losing 50% of its value within weeks, is even more frightening.
https://twitter.com/WeissRatings/status/996769787341656065
In the case of Venezuela, the official authorities even rode the crypto hype, with the confusing creation of the Petro, a national cryptocurrency. In reality, Venezuelans rely on Bitcoin mining, but are one of the most active users of DogeCoin (DOGE).
The example of Iran shows where crypto assets can be important, when the traditional banking system fails. Having a store of value and a medium of exchange can help rebuild the economy, although this may start with only informal deals, and cause the creation of a large grey economy sector.
In the past, transition countries have resorted to cash, using dollars or other foreign currencies as a safe haven. But with government capital controls, the only way out now for panicked Iranians may be crypto coins, believes Villaverde:
“Millions of Iranians are panicking. They fear not only renewed sanctions but also economic collapse and financial repression. Many are desperately looking for any viable way to leave the country. Many more are scrambling to find safe refuge for the little money they have left.”
Even having dollars in a bank account can make them inaccessible, as electronic money are easily controlled by a central authority. The crypto community may see such crises as a blessing in disguise, showing how the decentralized network of Bitcoin, and other coins, can connect peer traders in economic relationships that cannot be limited by any government.
For Iranians, there may be logistical issues, however. Most exchanges are centralized, and are under some form of government scrutiny. Bittrex has been known to deny verification and freeze accounts based on nationality, especially targeting Syria, Turkey, Russia, and also Iran. But other channels for exchanging Bitcoin may exist.
Villaverde believes that even in stable countries, having a part of one’s portfolio in easily transferable, portable crypto coins is a hedge against uncertainty.
This article appeared first on Cryptovest