The European Central Bank (ECB) says that Bitcoin (BTC) and other digital assets have been playing the role of a store of value for many people around the world.
In a new report on the global and local drivers of Bitcoin and crypto, the ECB names three things that are driving the adoption of digital assets in emerging and developing economies (EMDEs).
One of the catalysts that the ECB mentions is the store of value that digital assets may provide to people in countries with unstable domestic currencies.
“First, cryptocurrencies may be used as speculative assets, which may be particularly attractive to investors from countries where the portfolio choice of investment assets is restricted by regulatory or institutional factors.
Second, even though prices have been very volatile, these cryptocurrencies may represent a better store of value with respect to the domestic currency of countries where inflation is high and the exchange rate tends to depreciate.
Third, residents from EMDEs may use cryptocurrencies as a means of payment in cross-border transactions to circumvent capital controls or to lower the cost of receiving remittances from abroad.”
The ECB also says that the rampant debasement of fiat currencies – which has accelerated since the Covid-19 pandemic – particularly in EMDEs, has helped spark more crypto trading.
“The depreciation of the domestic currency of EMDEs – notably not of the currency of AEs (advanced economies) – induces more Bitcoin trading, in particular after the COVID-19 pandemic.
This indeed suggests that Bitcoin, despite its wide price fluctuations, might have been appreciated also as a store of value or medium of exchange in countries which experienced a loss in the the purchasing power of their domestic currency. In turn, this implies that macroeconomic instability may potentially spur greater cryptoasset usage.”
Source : The Daily Hodl / Dec 7, 2023