Zimbabwe has had an interesting couple of days. This is after a military takeover that ousted the longtime president Robert Mugabe. The events saw the cost of one bitcoin rise to $13,499. Nearly double the international rate. Bitcoin was trading at about $7500 globally at the time.
Bitcoin popularity in Zimbabwe is growing fast. Although the growth is not as fast as the rest of the world, it is encouraging. Furthermore, this is the case in most African countries. Most are unaware of cryptocurrencies.
Why the sudden interest in Bitcoin? Besides the ongoing hype world over, digital currencies are quickly becoming popular in countries with failing economies. Citizens are losing trust in financial institutions. Digital savings secure savings from political turmoil and inflation. All one needs is a secure peer-to-peer network.
Andrew Milne, Co-founder of Atlana Digital currency fund says Bitcoin is a safe haven for those who don’t trust their governments. More so, many countries in Africa have more mobile phones than bank accounts, for Bitcoin a phone is enough, remarks Manuel Valente, co-founder of La Maison.
Golix, Zimbabwes’s only cryptocurrency exchange reported having more than $1 million transactions in the past month. That is 10 times the turnover in 2016. This is from 146 transactions, same volume traded on the US largest exchange Bitfinex every 15 minutes. Merely, a drop in the ocean.
Why are Zimbabweans turning to Bitcoin?
Zimbabwe’s economy has struggled for years. The country experienced high rates of currency inflation, to the point of dropping its Zimbabwean dollar in 2009. The rate of inflation hit an astronomical 79.6 billion percent. The country has since then adopted the U.S dollar and S.A rand as legal tender.
During this time, many individuals and organizations have proposed having Bitcoin as an alternative currency. Zimbabwe-based economist, Philip Haslam, explained Bitcoin could be beneficial to Zimbabweans. He remarked that Bitcoin was a currency that could withstand eroding and perishing unlike the fiat currencies. Adding that Bitcoins allow privatized banking.
Hyperinflation rendered the country’s currency worthless. Foreign currencies are problematic. Dollars are short in supply and there are strict controls in place. Additionally, the recently introduced ‘bond note’ with far lower and decreasing value is not invoking any confidence in the locals. Another round of hyperinflation is foreseeable.
For the locals making foreign payments has been next to impossible due to bank capping or halting transactions by VISA and MasterCard. Bitcoin is the much-needed reprieve.
Bitcoin has always commanded higher prices in Zimbabwe. Therefore, the latest prices do not come as a shock. During political or economic crises, people turn to value retaining assets such as gold to preserve their wealth.
The latest surge in price is a result of Zimbabwe’s current economic turmoil and mismatched supply and demand. Most, if not all, bitcoins in Zimbabwe come from individuals who buy them from exchanges. Low liquidity and not an influx of investors is causing the price to skyrocket. Exchanges base their price on the demand they have for the coin.
The high Bitcoin prices were only evident on Golix. Zimbabwean Brokers on LocalBitcoin, the biggest peer-to-peer platform, were offering prices in line with global prices, with only a slightly higher premium. LocalBitcoins trades tens to thousands of Bitcoins. The popularity is soaring. Volumes in the platform have risen significantly around the world in the recent months.
LocalBitcoin offers payment through online platforms and bank transfers. Only Golix and other intermediaries trade bitcoins for cash. With shortage in physical cash and bank regulations, locals opt for cash exchanges. Hence, the luxury to demand exploitative premiums .The demand for physical cash has further driven the price up. Until the country adopts less-inflationary monetary policy, bitcoin price will remain at such exorbitant prices.
Zimbabwe’s economic situation seems like it will get worse, before it gets better. As the country continues to deal with economic hardships, bitcoin could be the way out. Gauging by the current demand, this could be true.
Political unrests are turning millions to cryptocurrencies.Cryptocurrencies are a hedge against financial woes. Venezuelans have turned to Bitcoins to salvage the crisis in their country.
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