ECB: Bitcoin Can Be An Alternative To Fiat In Countries With High Inflation And Economic Instability

The European Central Bank (ECB) has published a report that acknowledges that Bitcoin can be an alternative to fiat in countries with high inflation and economic instability.

The report analyzed Bitcoin transactions in pairs with 44 national currencies from 2018 to 2022. The data was taken from P2P platforms LocalBitcoins and Paxful.

According to the report, the ECB confirmed that speculative expectations are the main driver of activity in the crypto market. However, the regulator also made several other conclusions:

  • Despite high volatility, cryptocurrencies, in particular Bitcoin, can serve as an alternative to fiat as a store of value in countries with high inflation.
  • Cryptoassets can also be used for cross-border payments to reduce costs or circumvent capital controls by authorities. This is again typical of emerging and developing economies (EMDEs).

In addition, the depreciation of national currencies of EMDE countries served as a factor in the rise in prices in the cryptoasset market, the ECB stressed.

“Devaluation of the national currency in EMDE countries stimulates the growth of Bitcoin trading volume, especially after COVID-19,” the report says.

Judging by the findings of the study, the ECB's rhetoric towards cryptoassets in general and Bitcoin in particular has completely changed.

The report states that “despite high volatility, Bitcoin has a certain value as a store of value and exchange in countries that have experienced a decline in the purchasing power of their national currency. In turn, this means that macroeconomic instability can accelerate the wider use of cryptoassets.”

The report was commented on by Patrick Hansen, Director of Strategy and Policy in the EU at Circle. He recalled that in 2022, the regulator published another article in which it stated that Bitcoin was “taking its last breath”.

“This report shows that the ECB has changed its view of Bitcoin. The regulator now recognizes that Bitcoin can be useful in countries with high inflation and economic instability,” Hansen said.

Key points:

  • The ECB has acknowledged that Bitcoin can be an alternative to fiat in countries with high inflation and economic instability.
  • Cryptocurrencies can be used for cross-border payments to reduce costs or circumvent capital controls by authorities.
  • The depreciation of national currencies of EMDE countries served as a factor in the rise in prices in the cryptoasset market.
  • The ECB's rhetoric towards cryptoassets has completely changed.

Conclusion:

The ECB report is an important change in the regulator's attitude towards cryptocurrencies. The regulator now recognizes that Bitcoin can have some value in countries with unstable economies. This change could lead to wider adoption of cryptocurrencies in these countries.

Author: Denis Tabyrtsa

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