Bitcoin trading expanded faster this year in emerging markets than developed ones -- and quickest of all in places where authorities tried to crack down. Somewhere, Satoshi Nakamoto is smiling.
After all, avoiding bank and government oversight, and sidestepping the eroding effects of inflation, was what Nakamoto had in mind when he (or she, or they) created bitcoin in 2008.
Peer-to-peer bitcoin trading in major developing nations outpaced the US, the world’s biggest market, according to data from LocalBitcoins. Demand surged in China and Russia, where central banks put a stop to local exchange trading; in Venezuela, where authorities cracked down on bitcoin mining even as hyperinflation drove up demand; and in Brazil and Colombia, where citizens heard dire warnings of cryptocurrencies’ risks.
“The strong interest from emerging-market countries could be reflective of relatively less stable local currencies or a byproduct of greater exposure to financial and economic crises that makes an alternative system like bitcoin relatively appealing,” Spencer Bogart, head of research at Blockchain Capital LLC in San Francisco said.
Cryptocurrencies don’t rely on central banks or financial institutions and are traded on online exchanges and transferred anywhere in the world, allowing holders to skirt currency controls. Bitcoin’s creators also set a limit to the amount of currency that could be created to avoid the inflation that ensues when central banks print money.
In China, where regulators closed local exchange operations, peer-to-peer trading rose more than 2,000 per cent in dollar terms this year, and in Russia, where President Vladimir Putin warned the use of digital currencies bears “serious risks,” it increased by almost 200 per cent. Meantime, it grew by about 20 per cent in the US
Bitcoin landed on Wall Street this week, with the launch of futures on Cboe Global Markets Inc.’s exchange, as the 1,700 per cent surge in the world’s most popular cryptocurrency this year has captivated everyone from mom-and-pop speculators to trading firms. Similar futures will start trading Dec. 17 at CME Group Inc.’s exchange.
Google Trends data also hints at growing interest from emerging-market users, according to Bogart. Five out of the six countries where “bitcoin” has the most search interest are developing nations, he says.
Nigeria, which sits atop the Trends’ list, saw peer-to-peer transactions rise almost 1,500 per cent this year, as the country went through a foreign exchange market overhaul that led the naira to weaken 12.4 per cent this year. An almost 1,000 per cent rise came in Venezuela, where bitcoin provided a way to skirt the government’s tightening controls on access to US dollars and spiraling inflation that slashes the value of the bolivar.
Trading volume in such places remains a fraction of larger markets, even after such explosive growth, amounting to about $115 million in Nigeria and $50 million in Venezuela. Global trading stood at $1.9 billion last year, according to LocalBitcoins.
Room for arbitrage?
Surging demand has created price discrepancies. One bitcoin in NairaEx, a local Nigerian exchange, cost 7,230,098 nairas as of Dec. 12. Converted to dollars, the cryptocurrency was more than 15 per cent more expensive than a bitcoin in the US