Bitcoin adoption is growing worldwide, and emerging markets are increasingly becoming crypto-hotspots. Where people are threatened by hyperinflation, high crime rates, and economic uncertainty, crypto-assets have a very convincing value proposition.

Bitcoin trading volumes have increased worldwide in recent years, with significant regional differences. An analysis of regional trading volumes shows that Bitcoin has become especially sought-after in emerging markets with unstable economies and high inflation.   

Source: LocalBitcoins, Coin Dance

Data from the Finnish crypto exchange LocalBitcoins, a peer-to-peer exchange that facilitates fiat-to-crypto exchange in 249 countries, is particularly useful for analyzing these regional differences. LocalBitcoins is hardly suitable for speculation due to high transaction costs, and the exchange shows no signs of washtrading, making the data more reliable. 

Hyperinflation in Argentina and Venezuela

Two examples of countries with high inflation are Argentina and Venezuela. In Argentina, the inflation rate in 2019 was 54%, the highest level in 28 years. Since the government’s countermeasures have not improved the situation, confidence in the national currency has evaporated, and demand for Bitcoin has exploded. 

Source: LocalBitcoins, Coin Dance

In Venezuela, hyperinflation is now completely out of control, with devastating consequences for the local population. In 2019 the inflation rate was 9.586%. As fiat currency is not of much use anymore, Bitcoin and other cryptocurrencies have become an accepted means of payment in many Venezuelan retail stores.

Source: LocalBitcoins, Coin Dance

Currency depreciation in Chile and Russia 

Many investors use cryptocurrencies to protect their assets against the depreciation of their national currencies against the US dollar. In Chile, inflation is under control at about 3%, but the peso has depreciated 27% against the US dollar over the past year. Since gold and foreign currencies are not easily accessible, investors are fleeing into Bitcoin. The same happened in Russia, as the rouble has also been devalued as a result of economic sanctions.

Source: LocalBitcoins, Coin Dance

High crime rates in Kenya and Colombia

In countries with high crime, cryptocurrencies provide a way to avoid using cash that can easily be stolen. In countries such as Kenya or Colombia, retailers are increasingly using cryptocurrencies. 

Source: LocalBitcoins, Coin Dance

Currency reform in India 

In India, Bitcoin has gained importance following the currency reform in 2016. India’s central bank paralyzed the economy at that time with the sudden devaluation of more than 80 percent of the country’s cash. Truck drivers could no longer buy gasoline, farmers could not pay for their seeds, and patients died in front of hospitals. Despite a ban on Bitcoin trading, trading volumes have increased significantly.

Source: LocalBitcoins, Coin Dance

In USA and Europe crypto assets are first of all an investment vehicle 

The data from LocalBitcoins show a trend that has become increasingly clear in recent months: The demand for cryptocurrencies from emerging markets will drive global cryptocurrency prices in the near-term future. 

In countries and regions with comparatively stable currencies, such as Europe, the USA, or Hong Kong, trading volumes also increased, but for other reasons. In contrast to emerging and developing countries, Bitcoin is rarely used as a means of payment in industrialized economies and cryptocurrencies have not (yet) played a major role in hedging against inflation either – although this could change in the coming months and years. Today, investors in industrialized economies buy crypto-assets because of their excellent returns and their advantages for portfolio diversification.