Rapture #117: Dictators' Love Affair with Bitcoin
First, it was El Salvador’s Nayib Bukele. Now, it is Turkey’s Erdogen. Dictators around the world who no longer want to be reliant on a dollar system and have their own inflating currencies to deal with are thinking at Bitcoin as a potential way out. This trend is just in its early stages, and in the coming years, more dictators, who typically can move faster than democracies, will consider making Bitcoin an officially recognized currency for that country.
El Salvador
El Salvador’s enigmatic millennial dictator Nayib Bukele was the first world leader to make BTC a recognized national currency. On September 7th, 2021, Bitcoin officially become legal tender in El Salvador.
The country’s government then proceeded to build a network of 200 Bitcoin ATMs and distributed $30 worth of Bitcoin to every citizen as a way to jump start the economy of Bitcoin.
This move by Bukele is particularly interesting considering El Salvador primarily relies on the dollar as its pre-eminent medium of exchange. Bukele has largely consolidated power around being independent of the United States, and he is using the message of Bitcoin to advance his agenda.
Most recently, El Salvador announced the first ever inaugural bitcoin bond issue, which would be worth $1 billion and have a coupon of 6.5%. Half of the funds will be used to create the infrastructure needed for the world’s first Bitcoin City, while the rest will be utilized to buy BTC.
It will be important to monitor the trend of countries moving away from the dollar to more BTC based financial systems.
Turkey
While El Salvador was the first mover, other countries are beginning to take BTC far more seriously to stabilize a country’s economic problems. Specifically, Erdogen of Turkey has recently been meeting with Bukele. While nothing about Bitcoin was publicly discussed, since I am a betting man I speculate that the digital asset was discussed. Why would Turkey be prioritizing a meeting with El Salvador?
Without a doubt, Erdogen is desperately looking for any solution to solve his economic woes, as Turkey is experiencing significant inflation.
Turkish people have been entering crypto in droves since inflation started exponentially rising. In fact, during Q4 2021, trading volumes utilizing the lira leapt to an average of $1.8 billion per day across the three major exchanges in Turkey.
Takeaway
While El Salvador, and maybe soon Turkey, early adopter countries in embracing Bitcoin, they surely will not be the last. As many countries around the globe continue to face increasing inflation, and as the Federal Reserve likely opts to monetize US debt, there will be a significant desire to peg their currencies to a hard asset in order to restore faith in their economies. While gold (and sometimes land) has traditionally been the asset of choice during these periods, BTC and potentially ETH will be superior choices for many countries because of their portability and accessibility.
The coming decade will be one of significant macroeconomic strife, and crypto will continue to play an ever increasing role, eventually reaching a point where nearly all economic activity occurs in crypto assets.