The Role Of Bitcoin In Emerging Markets

By Ben Carsley, Managing Editor (@BC_PYMNTS)

Whether you’re for or against bitcoin, there’s never a dull moment when it comes to the virtual currency’s battle for acceptance in developed markets.

On August 7, a Texas federal judge ruled that bitcoin is a legitimate security for the first time in the U.S. This allowed the SEC to proceed with a lawsuit against a Texas man accused of operating a Ponzi scheme based on bitcoin.

Just this past week, the German parliament recognized bitcoins as “units of account” which, while stopping short of granting bitcoin full currency status, allows for the legal use of bitcoin in private transactions.  And on July 31, Thailand became the first country to ban bitcoin, citing a “lack of existing applicable laws, capital controls and the fact that bitcoin straddles multiple financial facets.”

But while the successes and failures of bitcoin in developed markets have been well chronicled, its status in emerging markets is more difficult to monitor and assess. Will the absence of strong governments in some countries make bitcoin more accessible to consumers, or will a lack of technological advancement hold others back? Will bitcoin supersede traditional money in markets with significant unbanked populations, or will consumers be leery of a currency they cannot physically hold or see?

A recent post in Wamda, a site that explores entrepreneurship in the MENA region, took a stab at this broad topic. Editor-In-Chief Nina Curley spoke to a wide range of experts, and eventually settled on five factors that could lead to bitcoin’s success in various emerging reasons. Among Curley’s findings were factors such as:

Volatility: According to Curley, volatility is the second biggest barrier to adoption for bitcoin, trailing only a lack of understanding. She predicted that bitcoin’s volatility will diminish in part when people start using it more as a currency than a commodity. This will happen, she claimed, once bitcoin exchanges are more reliable and once more merchants accept the virtual currency. 

Liquidity: To appeal specifically to smaller states, Curley noted that bitcoin will need more liquidity. She cited economist Sveinn Valfells, who suggested that in countries like Cyprus, Panama, The Bahamas and Iceland – which have had trouble managing their own currencies – bitcoin could actually “serve as a viable official currency.”

Relationship To Cash: A third of Curley’s points is that bitcoin needs to be easily traded for physical money if it’s to see adoption in cash-based economies. Citing the Arab world as an example, Curley noted that cash-on-delivery requests can make up 70-80 percent of all online orders, which would create obvious problems for a digital currency.

Throughout the piece, Curley asserted that bitcoin needs to advance before it can grow in emerging markets. However, she noted that if these improvements are made emerging markets could indeed be friendlier to bitcoin than markets like the U.S., where one Bitcoin ATM operator cited the regulations as “pretty much impossible” to comply with.

To read more of Curley’s breakdown of bitcoin in emerging markets, view the full post here


Featured PYMNTS Study: 

With eyes on lowering costs to improving cash flow, 85 percent of U.S. firms plan to make real-time payments integral to their operations within three years. However, some firms still feel technical barriers stand in the way. In the January 2020 Making Real-Time Payments A Reality Study, PYMNTS surveyed more than 500 financial executives to examine what it will take to channel RTP interest into real-world adoption. Here’s what we learned.

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