cryptocurrency, bitcoin, ethereum, crypto
Iranians are having a moment.
What happens to a country when its government and banking industry become so self-serving that public trust drops to the point you have legitimate reasons to fear a Depression-style run on the bank?
And what do you do if the President tells the country he doesn’t have control over the state’s budget, which is already rife with corruption?
"Buy the dip, take the ride," that's what.
Protests in Iran have erupted over the failing economy faced by the youth and working class , and, more generally, over the distribution of power and wealth in the country.
Crypto usage in Iran has surged in the past few weeks. “I hold all my money, all my capital, in bitcoin mostly and some other altcoins,” Ziya Sadr told International Business Times.
Iranians Are Not Alone
Starting in the last half of 2017, Venezuela’s currency, the Bolivar, collapsed due to rapid inflation. In 2017, the Bolivar experienced 3,000% inflation, and some predict it will experience over 30,000% hyper inflation in 2018.
Which is why Venezuelans flocked to crypto to protect their wealth, leading Bitcoin to become a requirement for everyday survival.
Argentinian restrictions on importing foreign currency, combined with its high inflation rate, have led to everyday adoption in Argentina, as well.
You can also see this phenomenon in other countries that have sovereigns that can’t quite manage the money supply responsibly, like Colombia and Belarus.
When citizens lose faith in a sovereign’s or financial sector's ability to meaningfully control and manage its money supply, they will flock to alternatives. Historically, this has been gold.
But gold isn’t as easily accessible as crypto. You can try to find an actual gold dealer. Or, in the US you can buy into a gold ETF (which is like buying stock in an entity that holds the gold for you). But many developing countries don’t provide that kind of access. Even if they do have access to gold ETFs in their country or in others, citizens may be so skeptical of any overall finance system that they aren't willing to trust a gold ETF.
With cryptocurrency like Bitcoin, all you need is a phone, internet connection, and means (like a bank account) to buy it. That’s a much lower barrier than investing, directly or indirectly, in something like gold or silver.
This low barrier to entry means it’s easier for people to flee out of traditional finance if the industry, or government management of the industry, doesn’t behave.
Incentives, Incentives, Incentives
“Show me the incentives and I will show you the outcome.” – Charlie Munger
Many pundits are concerned that the crypto market is unregulated. The twist is that the cryptomarket is itself a form of regulation.
A lower barrier to exiting traditional fiat currency for something more stable and reliable like Bitcoin means governments and finance sectors can lose the support (read: investment and fiat usage) more easily.
This means the monetary choices of a government and the behavior of finance sectors have become subject to a higher threshold for good behavior: if they act corruptly (read: subprime mortgage moral hazard), citizens will flock to crypto.
Incentives are everything; Wall Street and the Fed now have more pressure to behave because they can lose citizens' and investors' confidence (and money invested) more easily. And, as the Glass-Steagall Act showed us, structuring incentives to promote accurate decision-making is one of the most efficient and effective ways to regulate.
Thought leaders like the Winklevoss twins often emphasize that Bitcoin’s long term value is its capacity as a store of value.
But examples like Bitcoin in Iran show crypto will also have significant usage in its capacity as a means of exchange; Iranians and Venezuelans may be using it as a store of value while their fiat currency declines, but they also need to use it in day-to-day transactions while social confidence in fiat and government is on a downtrend.