There’s a reason so many of those “invest in the token that’s going to revolutionize the X industry” scams often come from countries with shaky governance systems.
According to a new International Money Fund (IMF) report, cryptocurrency is much more popular in countries with insecure currencies and corrupt governments.
With the global cryptocurrency market expected to reach $2.2 billion by 2026, many governments are urgently moving to regulate the industry.
The rush is on to punish bad actors, with new scams using the excitement around the rise of bitcoin and ether to push through all sorts of fraud and Ponzi schemes.
But regulation can vary greatly from country to country. That makes it a lot easier to both use and abuse cryptocurrency in some parts of the world.
“Residents of countries where the traditional financial sector is well developed may be less likely to feel the need for crypto,” the study’s authors write without singling out any particular nation.
Inflation, Capital Controls And Weak Economies
The IMF surveyed more than 110,000 respondents in over 55 countries, polling between 2,000 and 12,000 people in each country, about their cryptocurrency use.
The report’s authors found many reasons cryptocurrency may be more popular in one nation over another.
High inflation can mean that a popular cryptocurrency like bitcoin is more stable than a local currency.
As poorer nations also tend to have higher capital controls — measures that prevent the flow of foreign funds in and out of the country’s economy — cryptocurrency can also be a way to circumvent taxes and limits.
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“A history of high inflation may make the domestic currency less attractive as a store of value,” the study’s authors write. “Past inflation is used as a proxy for the stability of the currency, which may affect the attractiveness of crypto assets as an alternative store of value.”
Remember When El Salvador Bought The Dip?
These findings, of course, don’t look great for countries that adopt cryptocurrency too enthusiastically, like El Salvador did last year.
“150 new coins!” the country’s 40-year-old president Nayib Bukele wrote on Twitter (TWTR) – Get Twitter, Inc. Report in September 2021. In January 2021, the country added another 410 Bitcoin for $15 million.
When the country declared bitcoin legal tender last June, its worth rose by nearly 8%.
But with that volatility, such widespread adoption can also pose great risks to the country’s financial system — a situation that has been earning Bukele heavy criticism from his own government.
The study’s authors also stress that results should not be taken to be a conclusive condemnation of cryptocurrency, because the sample size is relatively small.
Drawing conclusions about a country based on crypto is also a impossible, because bad actors exist all over.
So What Do We Do? Regulate It
According to the report, the best way forward is not fight, but to learn how to better regulate cryptocurrency.
In the U.S., Senators Jim Risch (R-Idaho), Bob Menendez (D-N.J.) and Bill Cassidy (R-La.) recently introduced the Accountability for Cryptocurrency in El Salvador (ACES) Act for better regulation.
“Crypto usage is empirically associated with higher perceived corruption and more intensive capital controls,” the study’s authors write. “[…] This evidence adds to the case for regulating crypto usage — for example, by requiring intermediaries to implement know-your-customer procedures.”