Cryptocurrency Adoption Rising in Economies with Currency Challenges

Bitcoin (BTC) and other digital assets are increasingly being recognized as a viable store of value worldwide, according to the European Central Bank (ECB). In a recent report, the ECB examines the factors that are encouraging the adoption of digital assets, particularly in emerging and developing economies (EMDEs). A growing reliance on digital assets in EMDEs implies a broader trend: as macroeconomic instability rises, so does the usage of cryptocurrencies.

The ECB notes that the depreciation of fiat currencies, a trend that has accelerated since the Covid-19 pandemic, is driving more people in EMDEs towards cryptocurrency trading. Unlike in advanced economies (AEs), where currency values have been more stable, the loss of purchasing power in domestic currencies in EMDEs has led many to view Bitcoin and similar cryptocurrencies as preferable stores of value or mediums of exchange.

Additionally, the report highlights three main catalysts for this adoption. Firstly, in countries where the choice of investment assets is restricted by regulations, cryptocurrencies are becoming popular as speculative assets. Secondly, despite the volatility in their prices, cryptocurrencies are often considered better value stores than the unstable domestic currencies in countries with high inflation. Lastly, cryptocurrencies are increasingly used for cross-border transactions and remittances in EMDEs, offering a way to circumvent capital controls and reduce costs.