Bitcoin is a Safe Haven from Inflation

The digital currency Bitcoin has proven to be effective as a safeguard against inflation. It has also been used to get past capital controls.

Inflation in Brazil

Bloomberg reported late last month (January 27) that because of tumbling real and increasing inflation, Brazil’s largest brokerage was attracting Bitcoin buyers.

Brazilian online brokerage Mercado Bitcoin president Rodrigo Batista told Bloomberg Technology that trading volume jumped to 10.5 million reais, which equaled to US$ 4.4 million, in December 2013 from nearly nil a year before. The progress was accredited somewhat to the real’s selloff.

The publication article explained that despite the world’s largest borrowing-cost growths, policy makers in Brazil found it hard to control inflation because of the country’s real plunging 9.6 percent against the U.S. dollar in the past three months, with the inflation, which augmented to 5.91 percent in 2013, despite Alexandre Tombini, the president of the central bank, saying it would decelerate, causing the people of Brazil to see Bitcoin as safe haven from inflation.

Batista, who is also an ex-software architect for Morgan Stanley in Brazil, said in an interview on January 22, “Fear of inflation is a determining factor for some people to take risks on Bitcoin here. There are no good investments here with inflation at 6 percent plus high tax rates. If the real continues to weaken a lot, it will also continue to benefit the market.”

According to Batista, Mercado Bitcoin’s volume in 2014 will likely swell to nearly 160 million reais /month, a figure that would rival trading volume in Germany.

Bitcoin in Argentina

Due the inflation currently experienced by the nation’s fiat currency, Argentinians are also beginning to see Bitcoin as a possible store of value. Argentina is already Latin America’s largest community of Bitcoin users.

Fundación Bitcoin Argentina vice-president Rodolfo Andragnes said that Bitcoin is popular in Argentina partly because of the country’s financial condition, both historical and present.

“Argentina is very attentive to all these kinds of things. As a country we, all Argentines, have suffered financial crises many times… They see in Bitcoin an opportunity to avoid the problems that we suffer here,” said Andragnes, according to a report by the Argentina Independent.

About the peso experiencing its severest depreciation since 2002 on January 23, Andragnes, however, said it was too early to say what the future holds for the Argentinian Bitcoin market.

“To be honest, today I don’t know what kind of impact this will have on bitcoins but I think that Bitcoin is a great solution for most Argentines. People still don’t believe in pesos and are still moving away from them and changing them into dollars or another kind of currency,” said Andragnes.

Cyprus Banking Crisis

The people of Cyprus have used Bitcoin to evade capital controls.

In March 2013, a bail-in for banks was announced by Cyprus’ government, imposing losses on financial institutions’ shareholders, debt holders, as well as large depositors. This, as a result, caused people to withdraw their funds from their bank accounts. A lot of those that withdrew funds winded up investing in Bitcoin, where the Cyprus government couldn’t touch it.

In fact, it was partly because of the high demand of Bitcoin in Cyprus followed by the banking crisis that Bitcoin started to gain popularity and value the world over.

“Bitcoins were growing slowly until Cyprus. Cyprus was the catalyst for the big increase in the price,” said Guillaume Babin-Tremblay, executive director of the Bitcoin Embassy in Montreal, Quebec, according to Forbes. He added, “The price started trading at about $40 and then doubled within a couple of days.”