The European Central Bank (ECB) says Bitcoin (BTC) and other digital assets have played the role of a store of value for many people around the world.
In a new report on the global and local drivers of Bitcoin and crypto, the ECB names three things driving the adoption of digital assets in emerging and developing economies (EMDEs).
One of the catalysts cited by the ECB is the store of value that digital assets can provide to people in countries with unstable domestic currencies.
“First, cryptocurrencies can be used as speculative assets, which can be particularly attractive to investors countries where the portfolio choice of investment assets is limited by regulatory or institutional factors.
Second, even though prices are highly volatile, these cryptocurrencies can represent a better store of value against the domestic currencies of countries where inflation is high and the exchange rate tends to depreciate.
Third, residents of EMDEs can use cryptocurrencies as a means of payment in cross-border transactions to circumvent capital controls or reduce the cost of receiving remittances from abroad.”
The ECB also says that the rampant depreciation of fiat currencies – which has accelerated since the Covid-19 pandemic – especially in EMDEs, has contributed to increased crypto trading.
“The depreciation of the domestic currencies of EMDEs – especially not the currencies of AEs (advanced economies) – is driving more Bitcoin trading, especially after the COVID-19 pandemic.
Indeed, this suggests that Bitcoin, despite wide price fluctuations, could also be valued as a store of value or medium of exchange in countries that experienced a loss of purchasing power of their domestic currency. This in turn implies that macroeconomic instability could potentially lead to greater use of cryptocurrencies.”
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