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Why Are the World’s Emerging Markets Turning to Crypto?

Despite efforts from governments to curb crypto activity, citizens from emerging markets like Pakistan and Nigeria are turning to crypto assets as a hedge. 

As countries around the world are grappling with unstable currencies, skyrocketing inflation rates, and the loss of financial access, the globe has seen an increased demand in what promises crypto can bring, due to the growing lack of trust in centralised institutions.

Last Thursday, the President of the Financial Action Task Force made a call to action, asking for countries to “take urgent action to shut down lawless spaces, which allow criminals, terrorists and rogue states to use crypto assets,” the regulator made its stance clear against crypto. But how are other countries interpreting the statement?

Pakistan’s government reportedly said that cryptocurrencies “will never be legalised” in the country to avoid Financial Action Task Force penalties – marking the prospects of barring the fifth-largest country in the world (with 239 million inhabitants) from even accessing this nascent financial technology in a bid to become part of the good side of the global regulator. 

While it may be an over-reaction, Pakistan has its own reasons. Last October, the country was taken off the FATF’s “grey list”, which labels countries as having “deficiencies” in their respective anti money-laundering (AML) controls, leading to their limited participation in the global financial arena.

Currently, Pakistan is negotiating with the International Monetary Fund for a bailout package for $1.1 billion in financing as part of a $6.5 billion IMF package – and there seems to have been no progress made lately. To boot, the IMF hasn’t been quite friendly with crypto either, with reports surfacing that the organisation applied crypto-suppression conditions to its own negotiations with Argentina.

As concerns rise about the country’s political and economic issues, Pakistan’s crypto adoption rate has been also rising – ranking 6th place in Chainalysis’ 2022 Global Crypto Adoption Index. Pakistan’s crypto use has been fairly active, with reports of many citizens converting their salaries to stablecoins to prevent currency erosion. 

So far in 2023, BTC in rupee terms has been up 103% so far – compared with 63% in US dollars terms, in contrast to the rupee dropping more than 20% against the US dollar year-to-date.

Sitting at the sixth largest country in the world (with a population of over 218 million people),  Nigeria is proving itself to be another burgeoning crypto-adopting nation. Ranked 11th in Chainalysis’ 2022 Global Crypto Adoption Index, the country also boasts first place in searching the term “crypto” and second in searching “bitcoin” according to Google Trends.

But why are so many Nigerians searching for crypto-related terms on Google? Many are speculating that the country is likely to devalue its currency once the new president is sworn in, to avoid trade imbalances and dollar shortages.

Turkey, the 18th largest country in the world in population (more than 85 million), ranked 12th in the Global Crypto Adoption Index, and marks itself as an ever-growing emerging market. Last week, Turkey’s currency hit a new record low as its citizens brace for a likely re-election for Erdogan in May 28th’s runoffs.

A recent chart by crypto market data firm Kaiko shows the spike in crypto activity based in lira, is now notably higher than euro-based activity – indicating that there’s currency woes at present, and the Turkish feel pressure in the need to hedge and diversify that can skyrocket crypto adoption in the country.

Another country to watch – Japan – is a rather unexpected entry. While not facing severe political and economical turmoil, as the country is the third richest in the world in nominal GDP, the 11th largest country in the world has been forecasted to grow their spot volumes immensely on crypto exchanges, according to a graph shared by James Butterfill, head of research at CoinShares.

While it’s mostly speculation as Japan’s inflation is low and its currency is stable, it can also be seen as a sign that investors are bracing themselves for higher inflation and currency instability. However, experts see that higher inflation would steamboat rate hikes, which in theory can strengthen the yen – but it still remains unclear on what bitcoin is a hedge for in Japan.

On the other side of things, citizens in countries like Ukraine, Argentina, and Lebanon – much like Pakistan and Nigeria, have turned to crypto to hedge against their local currency’s volatility and debasement. As many are struggling with reliable onboarding resources (or, onramps) and custody in these countries, it is surprising that few are concerned about regulatory hostility in the US.

Despite the US having the largest financial market in the world, this very fact indicates crypto’s true purpose and potential – exceeding beyond the speculation and typical services that financial markets provide.

As developing economies are growing accustomed to their own regulators overstepping their governance, leading to the limiting of financial freedom, their citizens are motivated to find better solutions – decentralised ones – to gain financial freedom again. Therefore, the decentralised nature of crypto assets are marginally easier to understand and use for these individuals limited in financial freedom in comparison to individuals used to a more open system.

When the world is at a turning point where its emerging countries’ economies are facing inflationary pressures, a strong US dollar, and increased risk of political turmoil, their citizens are provoked to see crypto assets like BTC, Ether, and stablecoins to have qualities like being “insurance” and a “hedge”. 

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