According to Gemini’s Global Cryptocurrency 2022 report: in 2021, cryptocurrencies have reached a tipping point, “evolving from an industry that is widely regarded as a niche investment market to a solid asset pool.”
According to the same report, 41% of cryptocurrency owners surveyed globally bought cryptocurrencies for the first time in 2021. That includes more than half of cryptocurrency owners in Brazil with 51%, in Hong Kong it is also 51% and 54% in India.
The study, based on a survey of 30,000 adults in 20 countries across six continents, also highlights that inflation and currency devaluation are important causes of the use of cryptocurrencies, especially in countries where this market has just emerged.
“People who conduct surveys in countries where their currencies have depreciated by more than 50 percent against the dollar over the past 10 years are five times more likely to buy cryptocurrencies in the coming years than those in countries where currency devaluation is 50 percent lower,” he said. This is a conclusion of the survey.
Brazil’s currency, the real, lost 218 percent of its value against the dollar between 2011 and 2021, indicating rising inflation. The survey said that 45% of Brazilians who responded to the survey said they would buy cryptocurrencies in the coming years.
South Africa’s currency, the rand, which has seen a 103% devaluation over the past decade, is second only to Brazil in the 20 countries surveyed. Of these, 32% of South Africans will buy cryptocurrencies next year. The countries with the highest devaluation or inflation are Mexico and India along with a similar tendency to buy cryptocurrencies.
In contrast, currencies in Hong Kong and the United Kingdom have not depreciated against the dollar in the past 10 years. At the same time, only 5% and 8% of those surveyed in these countries were interested in buying cryptocurrencies.
Noah Perlman, managing director at Gemini, concluded: “In countries where currencies depreciate against the dollar, cryptocurrencies are considered a “must-have” investment, while in developed countries, this investment is still largely considered “yes is good.”
Cryptocurrencies are alternative currencies.
Winston Ma, former CEO and head of the China Investment Corporation in North America and now an adjunct professor at New York University School of Law, made a clear distinction between an asset that has an inflation-preventing role and an asset that is considered an alternative currency.
According to him, cryptocurrencies such as Bitcoin (BTC) have not yet reached the level of being considered inflation prevention like gold. In 2022, they serve as more growth stocks. “Bitcoin is more closely correlated with the S&P 500 index – like Ether with nasdaq – than with gold, an asset class that is often considered inflation prevention,” he said.
But the case will be different in developing countries: “In emerging markets like Brazil, India, and Mexico that are struggling with inflation, this could be the main driver for people to buy more cryptocurrencies as “alternative currencies.”
Justin d’Anethan, Sales Manager at Amber Group, a Singapore-based digital asset company, said: “There’s no denying that from the early days until now, cryptocurrency ownership has largely taken place in countries where there is no monetary stability or problems with access to banking services.”
Simply put, developing countries are more interested in alternative currencies than they are with Fiat currencies that are prone to devaluation.He added: “On a dollar basis, larger flows may still come from institutions and developed countries, but the real number of users will likely come from places like Lebanon, Turkey, Venezuela and Indonesia and other countries.”
But inflation is also just one of the many factors driving cryptocurrency ownership. Stein Smith, an assistant professor in the department of economics and business at Lehman University, says that this depends on the country: “Basically, investors and entrepreneurs are gradually realizing the benefits of cryptocurrencies” as an “instantly accessible” trading option. It can be tracked and saved. In other regions, “capital gains and profits of cryptocurrencies” promote usage.
Monica Singer, head of ConsenSys in South Africa, said: “It’s not just inflation, it’s a bigger problem of giving young people a better life than their parents and not having to be afraid of failure or following legacy markets and assets.” In addition, “dependence on cash and remittances as well as reliance on social funding is a major problem in Africa.”
The future of money?
Overall, Brazil and Indonesia were the two countries with the largest number of cryptocurrency owners in the survey. 41% of those surveyed in each of these countries owned cryptocurrencies. However, only 20% of Americans surveyed said they own cryptocurrencies.
People who live in markets affected by inflation tend to see cryptocurrencies as the future of currency more. According to the survey, “The majority of those surveyed in Latin America (59%) and Africa (58%), who have experienced hyperinflation for a long time, say that cryptocurrencies are the future of currency.
This view is most expressed in Brazil with 66%, Nigeria with 63%, Indonesia with 61% and South Africa with 57%. The countries that do not support this view are in Europe and Australia, namely Denmark with 12%, Norway with 15% and Australia with 17%.
Related: Binance’s protections for the cryptocurrency industry
Does the conflict in Ukraine affect the ownership of cryptocurrencies?
“The Russia-Ukraine war has made cryptocurrencies attract the attention of the masses,” Stein Smith said, “especially as the Ukrainian government has raised more than $100 million in cryptocurrency donations since the outbreak of the war.”
This practical case demonstrated the power of decentralized money. This has the potential to promote the use, discuss policy, and leverage cryptocurrencies as a means of trading more in the future.”
But war may not affect every developing country. “The war in Ukraine has nothing to do with the demand for cryptocurrencies in Africa,” Singer said. Other factors have a bigger role to play. “It is true that inflation, but at the same time there is a lack of trust in the government in many countries in Africa and the fact that we have a very fast generation of young people who are very sensitive to the use of phones and the Internet.”
On the other hand, Ma argues that the conflict in Ukraine is a test case for the power of cryptocurrencies. “The war in Russia-Ukraine serves as a test for cryptocurrencies as a means of payment amid global instability, especially for people in emerging markets,” he said.
Inflation and currency devaluation are scaring many parts of the world. In the affected areas, Bitcoin and other cryptocurrencies are considered alternative currency candidates – the “future of currency.” This is not true for developed countries, although this may change with clearer regulation and more education. “It seems that Western countries are becoming more aware of inflation and its implications for cash retention,” d’Anethan said.
Related: US Fed inflation data will push bitcoin and ethereum prices even lower
