Can Crypto Be the Cure for Hyperinflation? Examples from the South

Hyperinflation, which leads to a sharp decline in the value of local currencies, forces millions of people to look for alternative ways to protect their savings and maintain the value of their assets. In such circumstances, cryptocurrencies, especially Bitcoin and stablecoins, are gaining popularity as a potential tool to combat economic instability. In this article, we will look at the examples of Venezuela, Argentina, and Turkey, analyzing the benefits and limitations of cryptocurrencies in the context of hyperinflation.

Example 1: Venezuela – Bitcoin as a Currency of Survival

Venezuela is one of the most high-profile cases of cryptocurrencies being used to combat hyperinflation. Since 2015, inflation in the country has reached sky-high levels, forcing citizens to seek alternatives to the bolivar, which has almost lost its value.

• Cryptocurrency Adoption: Many people have started using Bitcoin as a medium of exchange and store of value. Local peer-to-peer platform LocalBitcoins has seen a huge increase in transactions.
• Stablecoins: Due to their peg to the US dollar, stablecoins like USDT (Tether) have become a more stable option than Bitcoin. They allow citizens to store value without the risk of cryptocurrency volatility.
• The role of government: Venezuela has tried to create its own cryptocurrency, the Petro, based on natural resources such as oil. However, the project has been met with criticism and has failed to gain the trust of international investors or citizens.

Proposal: In Venezuela, cryptocurrencies have become a tool for everyday survival, although their adoption remains limited by the lack of access to the technology among the poorest segments of society.

Example 2: Argentina – Stablecoins in the Spotlight

Argentina has been struggling with high inflation for years, which in 2023 reached a level exceeding 100%. Argentines have become massively interested in cryptocurrencies, especially stablecoins, to secure their savings.

• Dollarization through cryptocurrencies: As the government has imposed restrictions on the purchase of US dollars, many people have turned to stablecoins like USDC and DAI as a digital alternative.
• Education and infrastructure: Argentines have a relatively high level of technological awareness, which has contributed to the dynamic growth in cryptocurrency adoption.
• Regulatory risk: The government is increasingly monitoring and restricting cryptocurrency transactions, which may impact their availability and attractiveness.

Proposal: Stablecoins have become a digital version of the dollar, allowing citizens to protect themselves against peso devaluation.

Example 3: Türkiye – Bitcoin as Digital Gold

Turkey, while not experiencing hyperinflation on the scale of Venezuela, has struggled with rapidly rising prices and a devalued lira for several years. In response, citizens are increasingly treating cryptocurrencies as “digital gold.”

• Growing adoption: Türkiye is among the top countries in terms of cryptocurrency adoption. Bitcoin and Ethereum are particularly popular as investment assets.
• Local platforms: Platforms like Binance Turkey and Paribu are gaining popularity, offering easy access to cryptocurrencies.
• Volatility risk: Despite Bitcoin's popularity, many investors are discouraged by its high volatility, which leads them to stablecoins.

Proposal: In Turkey, cryptocurrencies have become an alternative asset class, but their full use is limited by the lack of stable regulations.

Advantages of Cryptocurrencies in Fighting Hyperinflation

1. Preservation of value: Stablecoins like USDT or USDC provide stability by being pegged to the US dollar.
2. Summary: Cryptocurrencies can be stored on mobile devices, making them accessible even to people without access to traditional banks.
3. Protection against confiscation: Private wallets enable funds to be protected from arbitrary government action.

Risks and limitations

1. Variability: Bitcoin and other cryptocurrencies can fluctuate in value rapidly, which is not ideal for capital preservation.
2. No regulation: The lack of a stable legal framework in many countries leads to the risk of prohibitions or restrictions.
3. Technical barriers: Lack of internet access and low technological awareness limit cryptocurrency adoption in some regions.

Summary: Are cryptocurrencies the solution?

Cryptocurrencies, especially stablecoins, have great potential as a capital preservation tool in countries suffering from hyperinflation. However, their full use depends on the availability of infrastructure, education, and stable regulations.

Is it worth investing? Cryptocurrencies can be an attractive portfolio diversification tool, but volatility and regulatory risks must be considered. As Andreas Antonopoulos said: “Bitcoin doesn’t solve the world’s currency problems, but it gives people a choice they didn’t have before.”