This week in crypto. May 31 - June 6. Real use of crypto in developing countries and more...
Real use of crypto
Institutional demand
Even as Bitcoin slumps from its vertiginous heights of over $60k, institutional demand stays strong. It is mostly fueled by clients who wish to diversify their investment portfolios, hedge from inflation or simply don’t miss another price push. Crypto ETPs, or exchange-traded products, are available in many parts of the world (since this week – on Paris and Amsterdam Euronext Stock Exchange too). Many commercial banks in the US, Europe or Asia offer their wealthiest clients exposure to cryptocurrencies (the recent one to jump on the bandwagon is Britain’s Standard Chartered)… The trend is quite clear, even if some countries still try to hinder it: this week Russian Central Bank pushed back Tinkoff online bank who solicited authorization to offer crypto to accredited investors.
Developing countries
However, the interest from financial institutions is so secondary to what crypto is really about. Decentralized systems that function without any central authority offer an amazing alternative to traditional organizations, and this is a highly valuable quality, notably when it comes to money.
When the Central Bank of Nigeria banned financial institutions from facilitating crypto trades earlier this year, Bitcoin trading volume did not drop there – it only moved further to peer-to-peer exchanges like Paxful. Using Paxful, people can buy their crypto with hundreds of different payment methods (PayPal, gift cards… whatever the seller wishes to accept), and thus bypass the stage when a bank sends fiat money to an exchange. In April 2021, over 1.5 M Nigerians used Paxful to trade over $1.5 Bn in crypto, and another $10 M exchanged hands via Localbitcoins – another P2P marketplace putting together crypto buyers and sellers.
So why are all these people using Bitcoin? Let’s take a look at a current monetary situation in Nigeria:
Naira, the local currency, is notoriously unstable and loses value in each oil crisis (and not only)
Constantly lacking dollars, Nigerian Central Bank often blocks cross-border payments, handicapping e-commerce and important expenses like education overseas
More than half of all adult population (100 M) is unbanked, mainly due to high poverty rate, lack of trust in financial service providers and remoteness from service points
Remittances make up the second-largest source of foreign exchange receipts after oil revenues (over $26 Bn was sent to Nigeria in 2019)
So why are all these people using Bitcoin ? It keeps value much better than naira, it is independent and borderless, anyone with a mobile phone can open a wallet and access the network, and it allows much faster and cheaper remittances.
This can seem like an isolated case, but Nigeria is only one example among many. 90% of the world population does not live in Europe or the US, and in one way or another can benefit from Bitcoin qualities now. We believe that dollar and euro zones are at risk too, notably due to an unprecedented money-printing frenzy, but it appears less urgent, not to mention that Europeans and Americans are much less sensible to the currency issue after many years of relatively stable economies.
People who need Bitcoin in their lives will ensure its future, assisted by fintech companies that create the necessary ecosystem of wallets, exchanges and payment services. There are many such companies already, and there’s definitely room to grow many more… Paxful CEO Ray Youssef mentioned that new markets are “blowing up” every day, with Cameroon, Ethiopia and Ghana being strong contenders for emerging crypto markets in the next few years. South-East Asia is booming too, and a Filipino payment service GCash announcing this week its plans to introduce crypto trades to its 40 M users doesn’t come as a surprise.
El Salvador, the first nation with bitcoin standard
The recent developing country to affirm itself as a crypto nation is El Salvador: its President Nayib Bukele announced this Saturday his intentions to make Bitcoin legal tender in the country and have it on its reserves. Among other reasons, this move is also a push back against “unprecedented monetary expansion” of the US, notably because of the Fed printing money ad nauseam, which endangers dollarized economies of developing countries like El Salvador. 39-year old President Bukele is now proudly exhibiting “laser eyes” on his Twitter account (campaign for “pushing” Bitcoin to $100k), as well as “Welcome to the future” message.
As rightfully noted by Jack Mallers, the founder of crypto payment app Strike that earlier this year launched its remittances service in El Salvador, “the country that supports and fosters innovation is a country that crypto community will stand behind”. Strike will now work with Salvadoran authorities to build financial infrastructure using Bitcoin and Lightning Network, and many other crypto companies will come. Jack Mallers was the one who presented President Bukele’s video address on Miami Bitcoin conference this weekend, before adding, visibly moved, “I can build any future I want, and the government wants innovations, they want us to improve Bitcoin… and I don’t have to go get a fucking BitLicense” (a notoriously strict license for crypto service providers in the state of New York).
The future is now more clear than ever, and it may very well come to developing countries first.
Markets
Bitcoin
Bitcoin price continues to consolidate around $35-36k. From the chartists’ point of view the situation resembles the so-called “bearish pennant”, which can indicate a further price loss. The on-chain data by Glassnode, however, indicate that long-term hodlers continue to hodl through the dip, the sell-off coming primarily from the newest entrants to the market, which is a rather good news.
Ethereum
Ethereum gained +18% this week, but otherwise essentially followed Bitcoin movements. In the meantime, institutional investors continue injecting cash into Ether products that now represent more than one-quarter of institutional crypto asset under management.
According to CoinGecko, Ether is currently the second-most traded crypto ( over $30 Bn in daily volume), ranking behind only Tether stablecoin ($65 Bn). Bitcoin is coming third ($29 Bn).
Quote of the week
“In order to mitigate the negative impact from central banks, it becomes necessary to authorize the circulation of a digital currency with a supply that cannot be controlled by any central bank and is only altered in accord with objective and calculable criteria”,
from the bill submitted by President Bukele to the Salvadoran National Assembly