In turbulent economic conditions, Bitcoin offers an escape

Residents of developed countries have benefited from relatively stable economic conditions for most of the 20th and 21st centuries. However, in developing economies they have faced a much different reality.

In these countries, hyperinflation, bank runs and full-scale depressions can thwart any hope of economic well-being. Although events such as these may be the result of global forces, they often occur due to a lack of foresight and a lack of leadership by the governments and central banks of these countries.

In places like Nigeria and Lebanon today, these types of events continue to occur and put enormous pressure on their citizens, ultimately leading to a lack of confidence in the government’s ability to manage the economy. As a result, people are looking for alternatives and seem to have found a way out with the world’s first cryptocurrency — Bitcoin (BTC 9.15%).

The situation at hand

For those living in Nigeria, a recent policy limits the total amount of bank withdrawals. In an effort to speed up the implementation of a government-backed digital currency, Nigerian politicians passed a law banning citizens from withdrawing more than $44 from their bank accounts per week; businesses cannot withdraw more than $11,000 per week.

Not only is it hoped that this will speed up the introduction of the digital Naira, the country’s official currency, but also to bring inflation under control, which currently stands at around 18%. While there are differing opinions on whether limiting withdrawals will have any effect on this, one impact is more certain – citizens and businesses suffer when left to the whims of hastily implemented policies.

In Lebanon, a different situation is unfolding which further hinders the hope of economic freedom for the citizens. In a ground-breaking announcement, on 1 February Lebanon’s central bank devalued the lira from 1,507 to 15,000 per US dollar – effectively devaluing the currency by 90%.

Those with money in a Lebanese bank lost the vast majority of their purchasing power overnight. While implementing these policies may help banks deal with the economic turmoil that has gripped the country since 2019, citizens are likely to bear the brunt of these consequences.

A better form of money is available

As people in Nigeria, Lebanon and other developing economies are forced to endure the pain of these types of policies, Bitcoin offers an alternative to the status quo and as a result is gaining in popularity.

Unlike currencies issued by central banks, Bitcoin is resistant to manipulation. Because of this cryptocurrency’s decentralization, no agency or government can inflate Bitcoin’s supply. In addition, written into Bitcoin’s code is a concrete ceiling of only 21 million bitcoins. As a result of this limited supply, the purchasing power of Bitcoin holders may actually increase over time.

Events like those in Nigeria and Lebanon are likely to only accelerate the adoption of Bitcoin, as citizens look for safe havens. This already seems to be happening in Nigeria.

Over the past few weeks, the price of Bitcoin in Nigeria has increased disproportionately, compared to the rest of the world, as demand skyrocketed and people appeared to circumvent exceeding guidelines. Before prices fell over the past week, those looking to buy Bitcoin in the US would have had to pay around $23,000, but those buying Bitcoin in Nigeria had to pay over nearly $38,000, a premium of almost 60%.

In Lebanon, citizens are increasingly using Bitcoin to maintain their purchasing power and even serve as their own bank accounts. With the ever-changing exchange rate of the Lebanese pound, Bitcoin offers stability and reliability in a volatile economy.

Honestly, this is the beauty of Bitcoin. It gives those in developing economies an escape and an alternative. While it may be difficult to truly capture the widespread use of Bitcoin as a form of payment among citizens and businesses, it seems likely that as more people in these beleaguered countries are forced to look for alternatives, the use cases will increase. For reasons that we see in Nigeria and Lebanon, those living in developing economies may be the ones spurring widespread use of Bitcoin at a much faster rate than people in developed economies, simply out of necessity.