Introduction
Economic turmoil—be it hyperinflation, bank failures, or stock market downturns—has continuously pushed people to cryptocurrencies. Many digital assets, including Bitcoin, are seeing an increase in adoption as traditional markets are disturbed.
In this article we will examine:
- Why does economic turmoil bolster crypto?
- Real-world situations of adoption due to crises
- Responses from government and banking interests
- What the next crisis may mean for Bitcoin and altcoins
1. Why Do Economic Crises Drive More People Towards Crypto?
When fiat systems collapse, cryptocurrencies tend to get noticed and adopted for the following three reasons:
A. Hedge Against Inflation
- Hyper-inflationary nation-states often adopt Bitcoin rapidly (such as Venezuela, Zimbabwe, and Argentina).
- Bitcoin has a maximum supply of 21 million, so it is classified as “digital gold,” where fiat suffers extreme inflation.
B. Distrust of Banking Institutions
- Bank failure creates an opportunity for people to find a decentralized way to keep money (such as the 2008 market crash and 2023 Silicon Valley Banking collapse).
- Self-custody of crypto offers the benefit of being impossible to be seized, frozen, or use a bail-in to retrieve funds.
C. Controls on Capital and the Size of Wealth
- Governments create strict control such as currency controls during economic insecurity (examples, Nigeria, Lebanon).
- Crypto makes it easy to transfer wealth across borders without restrictions.
2. Illustrations of Crisis-Driven Adoption
Example 1: Hyperinflation in Venezuela (2016-Present)
- The Bolivar currency evaporated in value and the population began using Bitcoin and stable coins (USDT).
- There was a spike in LocalBitcoins trading volume as the public worked around the government’s restrictions.
Example 2: The Financial Crisis in Greece (2015)
- With capital controls, the public was only allowed to withdraw €60/day from the bank.
- When the Grecians turned to Bitcoin, the trading volume was at an all time high, as they sought financial freedom outside the traditional banking system.
Example 3: Lira Collapse in Turkey (2021-2024)
- Inflation soared, reaching 85% in 2022; as a direct consequence, the crypto population boomed as Turks sought to preserve their wealth.
- As the country restricted any trades or transactions in cryptocurrency, peer-to-peer (P2P) trading still flourished.
Example 4: Bank Failures in the United States (2023 – Silicon Valley Bank, Signature Bank)
- Following the collapse of Silicon Valley Bank, Bitcoin saw a price surge of as high as 20% in a single week.
- A significant amount of cash was moved into crypto to avoid the risks associated with banking failures.
3. How Governments Respond: Bans Versus Adoption
- Crackdowns: Some governments will use a crackdown against cryptocurrency to protect the integrity of their currency (China and Nigeria).
- Embrace: Others will embrace Bitcoin as legal tender (El Salvador, Central African Republic).
- Regulation: The United States and the European Union seek to regulate the usage and role of cryptocurrency in crisis.
4. The Next Crisis and what It means for Crypto
If we were to encounter another major economic downturn (i.e. a debt crisis, stock market collapse, or hyperinflation), we can expect:
- Short-term volatility → a multitude of panic selling then rapid recovery
- Long-term adoption curve → a larger share of people start using crypto as a safe haven asset
- Bitcoin as predominate leader → likely superior to any altcoin during high level uncertainty
- Stable coins demand to surge → USDT, USDC predominantly accepted stable coins, will become the go-to hedges to USD during volatility.
5. What you can do today
- Diversify → hold Bitcoin, stable coins, and good altcoins that aren’t correlated with inflation
- Pay attention to macro trends → Fed statements, inflation, bank stability
- Use self-custody wallets → minimize risk of exchanges during chaotic volatility events
Conclusion
History suggests that economic uncertainty tends to spike the crypto adoption curve. Be it hyper-inflation, bank failures, or government overreach, it is during these times that citizens tend to seek out Bitcoin and alternative financial products like DeFi for financial freedom.
