How Bitcoin became safe haven in South America
There is a theory called hyperbitcoinization. And it says that the widespread introduction of Bitcoin is possible in developing countries with high inflation — hyperinflation and crisis. As a rule, hyperinflation occurs when a government has a poor monetary policy. This is especially noticeable in countries such as Argentina, India, Turkey.
Last year almost every person in the civilized world became aware of Bitcoin. This led to the trend of transferring capital into cryptocurrencies in countries with poor economies. The infographic shows examples of South American countries that increase their cash investments in cryptocurrencies. Data is taken from Local Bitcoins P2P service.
We decided to look at the reasons that prompted the population of these countries to transfer their assets to Bitcoin.
Crises fuel interest for cryptocurrencies?
Argentina: high inflation
Argentina is considered one of the leaders among the countries of South America, along with Brazil, it is included in the G-20 countries. However, over the past 200 years, the economy of this country has experienced 8 defaults. So, in 1989, inflation was crazy 1000%. In 2018, things were no better – the national currency rate (Argentine peso) collapsed by 50% against the US Dollar. Not surprisingly, the population of the country began to look for ways to preserve capital. This can be seen in terms of trading volume, which increased by more than 2 times in 2018 using the LocalBitcoins service.
Political crises also have a profound effect on national currencies. This we can see on the example of Venezuela. The actions taking place there can be called a revolution with the self-proclaimed president and his supporters and opponents in the form of the current government. As long as a struggle develops between these parties, since the beginning of 2018, inflation has already reached an incredible 82,000%. This figure is the highest among countries on the planet. This is an extremely difficult situation for the population of the country, which already did not have a strong economy. But people found a way out – in just 3 months the trading volume on the P2P service increased to such proportions that it allowed them to take 2nd place in this indicator, second only to Russia.
Peru: political instability
The opposite is happening in Peru. Now it is the most stable country, judging from its economy. Export and GDP is increasing, in various ratings they are greatly supported and called the most stable economy in South America. However, the problem elsewhere. Since the 2000s, all the presidents of this country are under investigation due to suspicions of corruption schemes and abuse of authority. There is a political crisis.
This country is not very suitable for the theory of hyperbitcoinization, but it coincides on two points: it is an actively developing state with a crisis, albeit a political. It is possible that this could indirectly affect the increase in volumes, because, since the presidents (Constitution guarantor) use gray schemes, then the conclusion follows that it is common among the population. So the dark market of Peru is estimated to be 70-80% of GDP, which is almost 100 billion dollars. In this regard, remember the beginning of the formation of Bitcoin, which is associated with the Dark Net and SilkRoad (the first darknet site with Bitcoin trading). It is possible that part of the volume is connected with illegal activity, but this is only an assumption.
Colombia: high crime level
The Colombian economy recently did not experience strong shocks and it could hardly contribute to the increase in Bitcoin trading volumes. But as you know, this country is the largest supplier of illicit drugs in the world. The total volume of the shadow economy of this country is about 300 billion dollars, where most of it is drug trafficking. With the advent of Bitcoin, making such transactions easier and safer. It is with this that the growing popularity of cryptocurrencies in the country can be attributed, especially by criminal elements.
Hyperbitcoinization theory confirmed
So, the theory of hyperbitcoinization is confirmed in the countries of South America. At the same time, our analysts believe that it is necessary to add to this theory an item called the high level of the shadow economy in the country. It is this feature that unites these countries. South American countries have both of them economic instability and a high level of crime. These factors push the population towards choosing better money than national currencies. And this money becomes cryptocurrency.