Crypto could play a vital role in Afghanistan’s future

Most of us have watched the events of August in Afghanistan with dismay. For those of us with an eye on the country’s precarious financial position, the long lines of people queuing outside banks to withdraw limited amounts of money reminds us of just how difficult life is for Afghanis right now, and there is little reason to for optimism about the future. Charles Hoskinson, the CEO of IOHK and Cardano, believes that cryptocurrencies offer a solution to the Afghan people.

In an interview with CNBC on 1st September, Hoskinson said, “ “cryptocurrencies will play a larger role in Afghanistan […] in the war for and against the Taliban forces,” not least because there is a massive need for financial privacy-preserving technologies.

Frozen assets

Let’s not forget that the bulk of Afghanistan’s reserves –around $9 billion – are actually stored in the Federal Reserve Bank of New York, and access to them has been frozen, a fact the Taliban only recently discovered. The World Bank and IMF have also halted access to significant sums earmarked for the country. Ajmal Ahmady, former acting governor of the Afghan central bank, Da Afghanistan Bank (DAB) reportedly had to explain to Taliban leaders that the country’s assets were not in the country, and that DAB was “reliant on obtaining physical shipments of cash every few weeks,” the Biden administration had cancelled shipments as the Taliban approached Kabul. Meanwhile a Biden administration said, “Any central-bank assets the Afghan government have in the United States will not be made available to the Taliban.”

Taliban funding

So where will the Taliban get money from? To date, the organisation is largely funded by drug money from Afghanistan’s opium poppy crops, but whilst this might have sustained them, it’s not enough money to run a government, which means there will soon be a financial crisis in a country that already depended on foreign aid to support so much of its infrastructure. Furthermore, analysts predict that the economy will collapse, with prices exploding into hyperinflation. 

The rise of crypto adoption

Which brings us back to crypto for the Afghan citizen who wishes to evade the Taliban’s attempts to track personal spending or seize their crypto assets. For example, Western Union has suspended its services in the country until further notice last week — limiting the means available to Afghani citizens seeking to transfer their assets internationally. However, there are already many organizations that have shifted to accept cryptocurrencies in an effort to facilitate funding of basic needs and medical care for the Afghan people arriving as refugees in western countries. This does not answer the needs of those left behind.

Crypto adoption appears to have been rising in Afghanistan over recent years, with the country currently ranking 20th according to Chainalysis’ 2021 Global Crypto Adoption Index. It is notable that other countries with poor financial infrastructures, such as Pakistan, Venezuela, Vietnam and the Philippines also rank high on the index.

Cryptocurrency exchanges  in Afghanistan

There are a number of cryptocurrency exchanges operating in Afghanistan, including Binance. CNBC suggests the current situation is “a perfect test case for the usefulness of bitcoin and other cryptocurrencies.” One young Afghan crypto trader interviewed by CNBC said he has been keeping a very close eye on his crypto portfolio on Binance, as the local currency touches record lows and nationwide bank closures make it next to impossible to withdraw cash. It doesn’t give him access to cash, in a majority cash economy, but it does give him peace of mind that some of his wealth is safeguarded against economic instability at home. It also offers him and other crypto holders access to the global economy from inside Afghanistan, as well as certain protections against spiralling inflation.

Another young trader in Kabul said he sees crypto as the safest place to park his cash. “If a government isn’t formed quickly, we might see a Venezuela-type situation here.” He isn’t alone in his thinking. Google trends data shows that web searches in Afghanistan for “bitcoin” and “crypto” rose sharply in July just before the coup in Kabul. 

It is difficult to be definitive about how crypto could help Afghanistan, and the current number of crypto owners there is well concealed by the use of VPNs, plus nobody there is talking about it loudly, because most digital currency supporters inside Afghanistan often don’t want others to know they exist. There are also multiple barriers to entry for citizens: complex on-ramping processes, low Internet access and unreliable electricity leading to daily outages. Another factor is that 85% of the country is unbanked. So people wishing to deal in crypto have to get creative, usually through international contacts. One trader said, “It’s very easy in Pakistan,” he said. “Most people have relatives in Dubai, who buy crypto for them using their credit cards.”  This situation requires a great deal of trust, because when the person wants to liquidate their crypto stake, relatives will sell it for them and use the hawala system, an honour-based system of credit common in Asia and the Middle East, to transfer the funds across the border to Afghanistan. 

At the moment the situation is so unstable that crypto traders are unable to operate, and are resigned to HODLing until a government is formed. But many of the enthusiasts are determined to teach fellow Afghans about the benefits of owning crypto, with grassroots adoption coming down to one Afghan teaching another about how cryptocurrencies like Bitcoin work. It may be some time before we see much movement in crypto in the country, but it is going to be something to watch out for and see what happens.

The Covid-19 Crypto Craze

You might have noticed when you checked the price of Bitcoin (BTC) on 27th July that it had tipped over the $10,000 point and is continuing to rise. It was pretty unusual for a Monday, as there is usually a dip after a weekend. Not so in July..

Ron Shevlin is just one of the fintech writers and Snark Tank analyst who saw this shift as ‘The Coronavirus Crypto Craze’. He asked, “Where is this Coronavirus-fueled trading volume coming from and who will drive the future growth?” It was, and still is, a good question.

According to Cornerstone Advisors, 15% of Americans now own crypto in some form, and just over half of these people invested in cryptocurrency for the first time during the first six months of 2020. Furthermore, these new investors obtained roughly $67.5 billion in cryptocurrencies, averaging out at around $4,000 per person. 

This new penetration in the USA brings it into the Top 10 countries when it comes to crypto ownership, although it still has surpass Turkey (20%) Brazil and Colombia (18%), Argentina and South Africa (16%).

Who is buying crypto?

But what we all want to know is this: who has been on a BTC buying binge during the months when the pandemic forced people to stay at home across the world. Although, of course, if you’re at home, that’s the perfect place form which to buy crypto.

High-income men with postgraduate degrees account for eight in 10 buyers, and have an annual salary of around $130,000. Then there are the Millenials and Gen Xers. Millennials (26 to 40 years old) comprised 57% of the consumers buying cryptocurrency in 2020 with Gen Xers (41 to 55 years old) accounting for 30%. Baby Boomers hardly feature accounting for only 3% of crypto consumers, and Gen Zers are similarly thin on the ground at 7%.

Significantly, the majority of buyers are customers of traditional banks rather than the new digital challengers, which is surprising. Shevlin reports, “Of the consumers buying cryptocurrencies during the Bitcoin binge, almost half—47%—are customers of Bank of America.” By contrast only 6% of the 2020 BTC buyers use a digital bank as their primary bank.

Financial health and first time buyers

Another interesting revelation from the study is, “44% of Americans who have already invested in Bitcoin and other cryptocurrencies said that their financial health is “much better” since the beginning of the Covid crisis,” whereas only 5% of all other US consumers agreed with this statement.

The first time investors are an interesting group. In some ways similar to established crypto owners, they differ in one respect: they’re changing up the financial institutions they do business with.

Half of the first timers switched their primary banking relationship in the past six months—one-third did so in the past three months alone.

The key takeaway from all this is, as Shevlin says: “

 All banks—in particular, community banks and credit unions—should look at opportunities to provide Bitcoin wallets and other cryptocurrency trading services as a way to differentiate their services.”

Are crypto exchanges poised for a growth explosion?

What will the financial sector look like in 2030 after spending the decade challenging the incumbent financial services? Leeor Shimron, a Forbes Contributor, believes that crypto exchanges are poised to capture the growth in this space.

To date, crypto exchanges have provided users with a first contact point with an ever-increasing range of crypto assets. Lets’ not forget that the first crypto enthusiasts were retail investors who for the first time were able to access a new asset class before the institutional investors. As a result, most exchanges, such as Coinbase and Binance, were set up to service demand from the retail investor. For example, as Shimron remarks, “In just 8 years, Coinbase propelled crypto to the mainstream serving over 30 million users.”

Follow the Internet’s history

There have been several commentators who have suggested that the crypto story is very similar to the emergence of the Internet. The Internet was a fundamentally disruptive and paradigm shifting technology, and crypto very well may exhibit similar changes, mimicking the growth in Internet usage.

Illustrating this claim, Shimron cites the statistics: “User adoption of the internet reached 10% of American households in 1995, five years after the first web browser was launched. User adoption reached 50% in the U.S. by the year 2000.” Currently, US adoption of crypto is at around 5%, and hasn’t seen the same rate of adoption as the Internet. This is caused by “issues of scalability, privacy, and ease of use,” something that the Internet also had to overcome.

However, if Bitcoin’s growth story follows that of the Internet, it should achieve user adoption of between 20–50% by the year 2030.

Crypto exchange growth

Shimron applies a similar metric to exchange growth. He writes, “To project future exchange growth in the U.S., I assumed 5% user adoption of crypto in the US currently and calculated revenue growth if user adoption reaches 10% (conservative case), 20% (base case), and 50% (optimistic case) in the year 2029.”

The resulting scenarios for 2029 in terms of exchange revenues are: “$1.9 billion in the conservative case, $3.8 billion in the base case, and $9.6 billion in the optimistic case.”

He also remarks that although the 50% adoption may seem far-fetched, there are indicators supporting it, including ample growth potential amongst retail investors and demographic changes over the next decade, with more 18–39 year olds living in cities and being more familiar with digital technologies and virtual goods. These millennials will also inherit $68 trillion from the baby boomer generation by 2030, and they are looking for new ways to generate yield and store their wealth.

So, the future for crypto exchanges is bright, “as new use cases and killer apps emerge,” alongside retail users flooding the market and exchanges capture this growth.

Elon Musk hogs the headlines again!

Elon Musk, the Tesla and SpaceX entrepreneur, is making headlines again. Over the last week, we’ve had the controversy over the naming of his latest offspring, his nmother-in-law condemning his ‘red pill’ tweets, and now, unable to stay out of the press, he has slammed the Federal Reserve’s coronavirus stimulus package.

Musk claims that US fiscal policy has become “detached from reality,” and that it should be viewed in sharp contrast with “bitcoin’s looming supply squeeze,” as reported by Billy Bambrough. Now, Musk has gone a step further, according to Bambrough in Forbes, where he quotes the entrepreneur as saying “the central bank currency issuance” is making cryptocurrency bitcoin look “solid by comparison.”

Harry Potter and the Bitcoin Blockchain

Rather bizarrely, Musk’s latest statements came in response to a query from Harry Potter author, J.K. Rowling about how bitcoin works. The two are prolific Twitter users, and this is where the conversation took place on 15th May.

Rowling tweeted, “People are now explaining Bitcoin to me, and honestly, it’s blah blah blah collectibles (My Little Pony?) blah blah blah computers (got one of those) blah blah blah crypto (sounds creepy) blah blah blah understand the risk (I don’t, though.)

In reply, Musk told her Bitcoin looked solid by comparison with the currency issued by central banks, and said that he still owns 0.25 BTC. Cointelegraph stepped into the fray, and tweeted, “I think wveryone is just waiting for you to send them to the moon Elon,” which resulted in some comic responses in the form of Buzz Lightyear memes.

However, it seems nobody was able to convince Rowling about bitcoin, as she later tweeted, “I’m just about able to grasp a barter system. Talk of collectibles, tokenomics and blockchains and my brain just takes a walk.”

Vitalik Buterin of Ethereum then stepped up to provide the creator of wizards with his explanation, and Neeraj Agrawal, of Washington-based cryptocurrency policy think tank Coincenter, really tried to get Rowling to understand it by saying it was “magical Internet money.” Tyler Winklevoss objected to this, replying bitcoin was not ‘magical’, it was the US dollar that could be described that way.

J.K. Rowling may not have been convinced by the responses of the various cryptocurrency heavyweights, but as Bitcoin Magazine tweeted,

“Dear Diary, Today was a wild ride for #BitcoinTwitter.”