Cryptocurrencies, Bitcoin and company, are, at the moment, a promise. They promise to be a currency, but the truth is that they behave like an asset and practically nobody uses them for payments. They promise to be a refuge from inflation and the irresponsible behavior of Central Banks, but the truth is that their prices are quite correlated with that of other assets such as the stock market.
However, there is a current use case, which is not a promise. A case in which they already have a practical use in current times, although certainly not in the West. And is its use as a currency of last resort.
Countries with highly volatile currencies
There are countries where inflation is truly a problem. Countries where 10% of Spain seems like a bargain. Countries like Zimbabwe (257%), Lebanon (210%), Venezuela (167%), Turkey (78%) or Argentina (64%). In this type of country, where the Central Banks have indeed exceeded all the limits of what is reasonable, cryptocurrencies can be a real alternative to local currencies.
In these countries cryptocurrencies have a utility. Exchanging the local currency for Bitcoin is a way to protect personal assets, also outside the scope of the confiscatory capacity of local governments. We must not forget that normally, if inflation is so high in a country, it is usually because the Central Bank is no longer independent and the Government has really gone from being a legitimate collector to a machine for shredding people’s savings.
And cryptocurrencies allow assets to be kept outside the normal money circuit, away from confiscation and protected against currency devaluation. And that even in a bearish situation like the one we are seeing.
Bitcoin is profitable in Argentina even after its debacle
Yes, it is true, the fall of Bitcoin has been very pronounced in 2022. According to the latest data, it has fallen a little more than 50%. And yet of all the countries I have mentioned above (and there are some more in the list) have inflation above 60%. That is, even in the falls, having Bitcoin was more profitable than owning the local currency. And if we are strict, in the last year Bitcoin “only” has fallen by 41%, so the profitability is more than superior.
This is, at the moment, the true application of Bitcoin and the rest of cryptocurrencies. To be able to be used as a currency of last resort in the face of a failed state that is not capable of keeping its currency afloat. And in extreme cases it is possible to remove all the wealth of the country simply by memorizing a series of keywords to unlock the wallet. What other asset allows that?