Many countries experience sharp inflation and cost of living as several political and economic issues confront both the public and private sectors. This can impact the business environment and the buying capacity of consumers. Eventually, struggles may be observed as people grapple with seeking ways to afford commodities sold at higher prices. The government has a crucial role to play to ease this burden. It’s a crisis facing fiat currencies, especially now at the time of the pandemic.
Ironically, such a problem could spur the growth of the cryptocurrency market. Many companies and individuals may decide to shift to digital currencies to satisfy their needs and goals. Tradings and exchanges in a new platform could provide better opportunities that are not present in the physical market. It happens every day as thousands of traders do business in the bitcoin network, hoping to earn a good living. The constant growth of the market is foreseen as people turn to the opportunities that the crypto industry could offer.
In this article
Understanding Fiat Currencies Crisis
When a country struggles with economic downturns and the prices of goods soar up while the supply chain is unstable, fiat currencies may lose their nominal value. The decline in the worth of financial assets has a direct impact on the stability of fiat currencies. This can be triggered by several factors, especially economic and political turmoil. The government is accountable and responsible to address the matter through available remedies. Essentially, fiat currencies are being regulated by state agencies, and economic policies are drafted by the officials. Because of this, crypto platforms have seen an opportunity to allow blockchain-backed fiat to be existent on their platform. However, not all have successfully adopted the approach or integrated many of these national currencies like Bitcoin Loophole has done.
The case of virtual currencies like bitcoin is different. It is not regulated by the government and usually remains unaffected by the impact of economic failures confronting fiat currencies. This dilemma may even drive people to join the crypto industry in hopes of protecting or advancing their business interests due to the looming losses in the physical market.
Countries that are Shifting to Crypto Market
Some countries that have once struggled with economic crises have gradually adopted cryptocurrency as people sought new ways to make money. The transition and acceptance of virtual trading and exchanges have gone through hard criticisms. But to a large extent, the government cannot curtail the freedom of citizens to do what’s best for them.
- Venezuela
For decades in the past, Venezuelans suffered from hyperinflation, thus many of them turned to the cryptocurrency market as their store of value. It was reported that there were several hundred people from the country that joined the industry at the time when they were going through economic downturns. In the following years, interest in bitcoin and other cryptos has grown exponentially even until today where business establishments now accept payments in bitcoin. More significantly, the Venezuelan government has been taking part in trying to cash in on cryptocurrencies; it also launched a state-run mining pool and mining farm, according to reports.
- El Salvador
Most recently, El Salvador has shown interest in cryptocurrency. The government officials have initiated a law making bitcoin legal tender. This is a significant step towards economic independence and progress as the country does not have its own currency; it utilises U.S. dollars as a medium of exchange. Salvadorians abroad may now enjoy a more convenient way to send money home. To facilitate such transactions, the government has partnered with several wallets and ATM providers for this purpose.
- Iran
Iranians also got interested in cryptocurrency as a result of inflation and capital controls affecting their national currency. The government has driven many sectors to join the industry in response to the economic failures. It announced publicly to launch a state-run cryptocurrency. But even prior to this pronouncement, many citizens have already participated in several bitcoin transactions. The state officials are expected to draft a legal framework for the purpose of regulating the cryptocurrency in the country.
How the Financial Crisis Spurs Crypto Growth?
The answer is quite simple: when there is an economic struggle, many people find other means to earn money or protect their assets. Because cryptocurrency offers such opportunities and security, it encourages individuals and companies to participate in digital trading and exchanges. As many investors jump in, the crypto market grows, and it facilitates more transactions that could benefit more people.
Risk Note:
Shifting to cryptocurrency because of a struggling economy does not guarantee immediate returns and 100% security of investments. The nature of this market is highly speculative and volatile. It is best to exercise prudence in your transactions at all times.
