- Politics, inflation, and remittances are the main reasons why more countries are turning to Bitcoin
- Remittance commissions account for a big share of gross domestic product (GDP) in low and middle-income countries
- Rising inflation rates and Bitcoin adoption seem to have a direct correlation
Alex Hoeptner, CEO of cryptocurrency exchange BitMEX foresees at least five developing countries making the leap of adopting Bitcoin as legal tender by the end of next year. Hoeptner cites remittances, inflation, and politics as the three key factors for his prediction.
Remittance fees are siphoning money away from citizens of developing countries
BitMEX’s CEO criticizes established money transfer providers, such as Western Union, for charging people exorbitant fees for their service. With a large share of the workforce in developing economies working outside their home countries to earn a better living, fees on remittance payments are becoming increasingly problematic.
“The current system of remittances – led by money service providers like Western Union – is ripping people off by charging them an average of 10% just to send money home the next business day.”
For reference, low and middle-income countries accounted for a staggering 75% of total global remittances in 2020. Shortly after El Salvador adopted Bitcoin as legal tender alongside the US Dollar on September 7, president Nayib Bukele had estimated that money service providers will lose $400 million in commissions for remittances on a yearly basis. Remittances account for almost a quarter of El Salvador’s $25.8 billion GDP.
Using Bitcoin and other cryptocurrencies as a means of transferring funds can help developing nations save a considerable amount of money. There is a caveat, as crypto prices are prone to high volatility, which can make people hesitant to use digital assets as a primary form of transactions. Stablecoins are a perfect solution for this problem, which is probably the reason why they are facing increased pressure from regulators. The US, for example, is looking to limit private stablecoin issuance by imposing stricter capital and liquidity requirements for stablecoin issuers.
While inflation is devaluing local fiat currencies, Bitcoin is inflation-proof by design
Inflation is another important reason why we will see more countries turning to digital assets in the near future, according to Hoeptner. For reference, International Monetary Fund (IMF) estimates a 5.4% inflation rate for developing countries in 2021.
“My prediction is that by the end of next year, we’ll have at least five countries that accept bitcoin as legal tender. All of them will be developing countries.”
Hoeptner noted that the adoption of crypto and inflation levels are directly related to each other. We could see this play out in Turkey this year. As the Turkish lira weakened over the course of the year, due to almost 20% inflation, “crypto adoption surged.” Bitcoin’s artificial scarcity, which caps supply at 21 million, is a perfect antidote to the money printing bonanza that started as a result of the financial crisis in 2008, and picked up steam once the Covid-19 pandemic hit.
Savvy politicians will position themselves as crypto-friendly to appeal to young demographics
Hoeptner identifies the current political circumstances as the final reason for Bitcoin gaining governmental support from developing countries. Populist politicians with progressive tendencies are likely to take a crypto-friendly stance in order to appeal to technologically savvier young voters.
“As El Salvador works out the kinks in its rollout, savvy politicians will be thinking of how they can take a similar path, and how it might benefit both them and their constituents.”
The BitMEX CEO thinks each subsequent country that will turn to Bitcoin will have an easier time, now that El Salvador had shown what’s possible. The danger, however, lies in failed adoption, which could do more harm than good in the long term, Hoeptner warns.
According to a recent report from Chainalisys, the global cryptocurrency adoption has increased by more than 800% in the past year, with an increasing number of peer-to-peer (P2P) crypto-powered transactions in emerging economies being the main reason.
David is a crypto enthusiast and an expert in personal finance. He has created numerous publications for different platforms. He loves to explore new things, and that’s how he discovered blockchain in the first place.