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Bitcoin adoption in emerging markets outpacing the developed world

Emerging markets winning the race for bitcoin adoption as genuine need outweighs speculation as the driver for peer-to-peer bitcoin trading.

Bitcoin adoption, said Andreas Antonopoulos at the Deconomy conference in Seoul last week, will happen incrementally — starting in undeveloped countries, and gradually, as the tech evolves, infiltrating developed markets with new as-yet-unknown applications.

Data from LocalBitcoins shows that the first stage of this process has already begun. Peer-to-peer trading volume conducted through the site in emerging and frontier markets now surpasses volume in the developed world, and is not as responsive to price fluctuations.

This was highlighted on Twitter by San Francisco investment firm Passport Capital, who overlaid levels of trading volume in developed and emerging markets to reveal the findings:

Local Bitcoins Chart

LocalBitcoins volume in Developed Markets, which is shown on the chart in blue, shows a similar trajectory to the rise and fall of bitcoin’s price, reflecting the movement of speculators into the market as prices rise, and out again as prices fall. This contrasts with volume in Emerging & Frontier Markets, shown in orange, which has a steadier rise, and higher levels even as prices were dropping.

A lifeline for emerging markets

With limited liquidity and a high bid-ask spread, LocalBitcoins can be an expensive place to trade, and bitcoin generally costs a few percentage points more than the equivalent spot price. But despite the additional expense, volume on the platform has risen from less than $100,000 per week in 2012 to nearly $50 million per week at last count — a figure that puts the peer-to-peer platform in the same region as exchanges like Bitfinex.

A large percentage of the volume traded on LocalBitcoins in emerging markets, Passport Capital suggest, is not for speculation, but for practical purposes that are more in keeping with Satoshi’s original vision of providing an alternative, decentralized system of finance: “I think there is speculation in both EM [Emerging Markets] and DM [ Developed Markets].

Likewise, there is investment in both EM and DM. My overarching view is that citizens of EM countries see more utility in BTC as they generally have less stable currencies and less access to user friendly apps like Venmo/@Square. […] While the data doesn’t prove that, I think it’s supportive of that view.”

But, as the investment firm concede, the reason behind high levels of peer-to-peer bitcoin trading in certain emerging markets is not completely clear — and each country has its own reasons for turning to crypto.

Russia, Venezuela, China, Nigeria, and Columbia are the five countries found to be contributing 80 percent of all volume traded in emerging markets through LocalBitcoins. Each of these has its own catalyst for bitcoin adoption — stretching from currency devaluation, to strict regulation, and lack of alternatives for international remittance.

Trading in China, which accounts for nine percent of volume in emerging markets, could be motivated by either speculation or practicalities, and is likely to represent local buyers sidestepping strict local regulations by dealing directly in fiat.

The 37 percent traded in Russia could also be pinned on crypto enthusiasts facing disapproval from the authorities. Although online exchanges can be accessed from the country, including Houbi’s own Russia-focused platform, authorities have taken a dim view, with President Vladimir Putin warning that cryptocurrencies present “serious risks”.

But while peer-to-peer activity in Russia and China might simply be a way to evade authorities, Nigeria, Venezuela, and Colombia tell a different story. Nigeria, which accounts for 8 percent of volume, has faced significant uncertainty over its currency the Naira due to collapsing oil prices, creating enough unrest to potentially drive citizens to use bitcoin as a store of value.

For Venezuela, which accounts for 19 percent, bitcoin represents not only a way to skirt the government’s tight control on access to US dollars, but also avoid the catastrophic inflation that has taken hold of the Bolivar — a practical purpose that can also explain high levels of peer-to-peer trading in neighbouring Colombia, which is thought to have a booming cross-border smuggling business.

When considered in terms of the inscription on Bitcoin’s Genesis Block — “The Times 03/Jan/2009 Chancellor on brink of second bailout for banks” — providing a respite from these crises could be exactly what Nakamoto had in mind for bitcoin.

But, as Antonopoulos suggested on the stage at Deconomy, this could be just the beginning, before new and previously unimagined applications are introduced for the cryptocurrency:

“Stage one: Replace all of the fax machines. And then stage two: Do applications that a fax machine could never do.”


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