The bitcoin price has reached record levels this week, peaking at a global average of $6,634 on Tuesday morning.
Whenever bitcoin reaches an all-time high, investors who have considered purchasing bitcoin but have yet to do so lament that they should have bought in when the price was lower. “It’s too expensive now,” they complain. But while prospective investors in liquid markets grumble that $6,600 is too pricey, demand in emerging markets like Zimbabwe is driving local exchange rates far above the global average.
Bitcoin often trades at a premium in developing markets, where demand is high due to the instability of local currencies but cryptocurrency trading volume is low. The most expensive bitcoins in the world are found on Zimbabwean exchange Golix, where the bitcoin price peaked at $12,400 on Tuesday, representing an 87% premium over the global average. This is a $2,400 increase since October 20, while the global bitcoin price has risen by about $1,000 during the same timeframe.
The source of this phenomenon extends back to the previous decade, when few people anywhere — much less in Zimbabwe — had heard of bitcoin or cryptocurrency. In 2009, Zimbabwe replaced its national currency with the US dollar following rampant hyperinflation that forced the country’s central bank to begin producing 100 trillion dollar notes. However, there are not enough US dollars in the country to meet demand, and the prices of government bond notes that purportedly have equal value to dollars have plunged on black market exchanges, in part because they are not accepted by foreign entities. Banks have begun rationing US currency, and CCN.com detailed how Zimbabweans wait in line for hours just to withdraw $50 from their accounts.
As a result, many locals are turning to bitcoin, both because they can obtain it without cash and they can spend it outside the country.
“It is not necessary to have cash to buy bitcoin. Most people just use the generally available electronic means,” Yeukai Kusangaya, who coordinates trades at the Golix bitcoin exchange, told local news outlet The Standard. “As such, the buying of bitcoin is not affected by the prevailing cash shortages… in the event that a seller wants cash for bitcoin, they will have to identify such a buyer with cash on their own and do a peer to peer trade.”
Some observers have suggested that the government will attempt to crack down on bitcoin usage as part of its capital control policies, but others speculate that the government does not have the resources to accomplish this and will appear weak if it fails. Consequently, Zimbabwean technology analyst Nigel Gambanga told CNN the situation is so dire he would not be surprised if the government formally regulates bitcoin or even considers adopting it as legal tender.
“If trade in bitcoin intensifies with no resolution to the country’s currency woes, we could witness the central bank and government revise its position by taking on a more active role in cryptocurrency trading,” says Gambanga.
“The state has already taken extreme measures like banning the importation of fruits…so adding bitcoin to the country’s multi-currency basket might not be so absurd,” he concluded.