Amid the continuing currency crisis in Turkey, the Turkish Lira’s collapse has recently caused it to become more volatile than Bitcoin. Although Bitcoin volatility is a high bar to surpass, it goes to show that crypto can have a place as a haven from fiat currencies especially in times of crisis.
The surge in volatility of the Turkish Lira was first precipitated by sanctions levied by the US against two Turkish ministers in an ongoing dispute regarding the detention of an American pastor in Turkey.
Perhaps unsurprisingly the announcement was made by the US President in a tweet:
I have just authorized a doubling of Tariffs on Steel and Aluminum with respect to Turkey as their currency, the Turkish Lira, slides rapidly downward against our very strong Dollar! Aluminum will now be 20% and Steel 50%. Our relations with Turkey are not good at this time!
— Donald J. Trump (@realDonaldTrump) August 10, 2018
These 275 characters triggered increased pressure on the Turkish economy and caused the Turkish Lira to spiral even further down against the US dollar.
As the Turkish central bank continues to try to ease the pressure on the currency through loosening capital reserve requirements has only continued to lead to increased levels of volatility in the exchange rate between the Turkish Lira (TRY) and the US Dollar (USD).
Bitcoin’s volatility has long been used by crypto-skeptics as a primary reason why it is not suitable to be used as a store of value. However, this volatility may be part of the development of the fledgling technology and ecosystem evolving around cryptocurrencies.
All it took to drive the volatility of the Turkish currency, a country with a GDP of around $850 billion USD in 2016, was a change in regulations triggered by 275 characters. No wonder Bitcoin and cryptocurrencies have experienced the volatility that they have given the lack of clarity on regulations over the past 9 years.
Currency Crisis Causes Citizens to Seek Out Alternatives
When the value of a national currency starts to look like the following chart it becomes clear that even government-issued fiat money can quickly lose its value in the right circumstances.
Turkish Lira Exchange Rate to US Dollar (Feb-Aug 2018)
So the narrative that Bitcoin may ‘become worthless’, although possible, certainly applies to almost any currency, including that backed by governments.
But unlike government-backed currencies, cryptocurrencies are decentralized across the globe and are not influenced by geopolitical influence or economic track record of a given country. This potentially provides a safe haven for people in countries in the midst of the kind of a currency crisis currently happening in Turkey.
Cryptocurrencies such as Bitcoin offer the people a non-national alternative for storing their savings. Once the regulatory environment for cryptocurrency, hopefully on a global basis, then the rules of engagement for anyone looking to diversify their wealth away from government and central bank control will be clear.
Crypto Track Record During Currency Crises
This is but the latest link between a currency crisis and cryptocurrency as past examples of economic shocks in other countries also drove the utility of crypto assets as safe havens from economic upheaval.
- The Zimbabwe coup in late 2017 provided all observers proof of how the small market effect can drive the adoption of alternative stores of value. In the week following the army takeover, Bitcoin rallied +24% while gold was up a paltry +1%.
- Perhaps as a means to distract its citizens from ongoing hyperinflation, Venezuelan President Nicolás Maduro launched a national cryptocurrency called the Petro early this year. However, since it was purportedly backed by oil reserves priced in Venezuelan Bolivar, many still turned to Bitcoin as an alternative.
However, until Bitcoin or other cryptocurrencies have enough utility for those people in the midst of a local currency crisis to buy essentials like water, food, and shelter, there aren’t enough tangible use cases for average users other than speculative store of value and a hedge against their governments ineptitude.
So while the track record has been spotty, many point to cryptocurrencies’ ongoing evolution and development as one of the reasons why people looking for alternatives haven’t flocked to the safer and more secure choice.
i’ve seen enough of this. turkish ppl:
“should have bought bitcoin”
“shouldn’t have bought bitcoin”
how about we like… make bitcoin easy for people like grandpa Demirörs to understand so they can *choose* where to store their wealth? what challenges do we need to solve? https://t.co/YVm3fLCVB2
— Meltem Demirors (@Melt_Dem) August 13, 2018