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Governments’ continued crypto crackdowns and regulations seem to be having the opposite effect as their citizens rush to be part of the digital currency revolution.
In most cases, being denied something makes you actually want it even more, especially when that something has grown by over 1,700% in less than a year.
This definitely seems to be the case for Bitcoin. According to Bloomberg, trading in the digital currency increased exponentially more in countries with developing economies than their more developed counterparts, although the volume of trading was far less.
A Possible Reason for This Growth
The common denominator for this surge: these countries have been harsh with their criticism of, and regulations with regard to, Bitcoin and the crypto industry in general.
Central banks in both China and Russia have banned local exchange trading. The Venezuelan government has put strict regulations in place against Bitcoin mining, while Brazilian and Colombian citizens have been receiving cautionary tales of the dangers of crypto.
Spencer Bogart, who is the head of research at Blockchain Capital LLC in San Francisco, had this to say:
The strong interest from emerging-market countries could be reflective of relatively less stable local currencies or a byproduct of greater exposure to financial and economic crises that makes an alternative system like Bitcoin relatively appealing.
His comments make sense as cryptocurrencies don’t have anyone to answer to. There are no banks, governments, or single entities in charge that can force digital currencies to conform to any sort of process. It also offers a global currency option for users.
In addition, because Bitcoin has a cap of 21 billion bitcoins, inflation is a non-issue. Unlike fiat currency, the government won’t be able to print more bitcoins, which would increase inflation.
Phenomenal Growth in Emerging Markets
According to data on LocalBitcoins, peer-to-peer trading grew by more 2,000% in China, almost 200% in Russia, and approximately 20% in the US.
Countries south of the equator don’t want to be left out in the crypto cold either. LocalBitcoins shows an almost 1,500% increase in Nigeria’s peer-to-peer trading, which could be as a result of the country’s naira weakening by 12.4% this year. Venezuela saw growth of nearly 1,000%. Reasons for this include high levels of inflation that has resulted in a weaker local currency, as well as governments tightening their purse strings on access to the US dollar.
This growth resulted in a trading volume of about $115 million for Nigeria and $50 million for Venezuela. Even though the trading volumes of these developing markets are increasing, China and Russia combined still account for approximately 40% of the market.
Depending on the country, the price of a single Bitcoin can differ drastically. In Nigeria, it was trading at over 15% more than in the US. An increased price was also evident in Russia and Argentina, while Colombia, Singapore, and Brazil actually saw a lower price.
No Bitcoin for You
Back to wanting what you can’t have. Last month, Brazil’s central bank said:
[Cryptocurrencies] are neither issued nor guaranteed by any monetary authority, there is no guarantee that they can be converted to a sovereign currency and they are not backed by any kind of real asset.
Something to note: peer-to-peer trading in Brazil increased by 450% this year.
Columbia had similar comments and added that cryptocurrency disrupts financial stability. However, the country’s peso had depreciated by over 3% in as many months. That doesn’t sound very stable.
Turkey and India have also warned its citizens about the supposed dangers that crypto offers.
Cause and Effect
Even though it seems as if government regulations are what’s driving Bitcoin’s popularity and price, it could be the result rather than the cause. People could be buying more crypto to circumvent their government’s cash controls, which in turn results in said government putting regulations in place.
However, the disruptive nature of decentralized digital currencies is definitely a concern for traditional currencies. Simon Quijano-Evans, an emerging-market strategist at Legal & General Investment Management Ltd., said:
Cryptocurrencies stand as a potential challenge to the millennia of confidence-building measures that have gone into the construction of fiat currency.
This is most likely the reason that these developing countries are aggressively working towards a total cryptocurrency crackdown. However, this seems to result in an equally aggressive, and continued, increase in the popularity and price of digital currencies.
However, it’s not just negative press that could be responsible for this increase. Bitcoin’s growing futures market has also helped the price rise, with it surpassing the $17K mark once CBOE started trading their Bitcoin futures. CME will start trading on the 18th of December, with Nasdaq launching their product next year.
Do you think government crackdowns are what’s driving the crypto price up in some countries? Let us know in the comments below!
Images courtesy of Shutterstock, Bloomberg, and Bitcoinist archives.