ECB sees cryptocurrencies as an alternative to fiat

In conditions of limited access to TradFi, cryptocurrencies serve as an alternative, especially in emerging markets with younger populations. The study’s authors came to this conclusion according to ECB.

According to the study, devaluation of national currencies has led to an increase in Bitcoin transactions. In turn, stablecoins could gain broad adoption among individuals and businesses to compensate for the lack of financial alternatives.

The document is based on an analysis of Bitcoin transactions in pairs with 44 fiat currencies on the largest P2P-platforms LocalBitcoins and Paxful for the period January 2018 to April 2022.

Experts found a negative correlation between banking depth and digitalisation with the frequency of cryptocurrency usage.

Analysts cited reasons that may explain the growing popularity of Bitcoin and other cryptocurrencies:

• use as speculative assets in an environment with limited traditional investment options;
• higher value relative to fiat currencies as they weaken or in times of high inflation;
• use as a means of payment in cross-border transactions to bypass capital controls or to reduce the cost of transfers.

In 2022 the ECB described stablecoins as unsuitable as a means of payment.

In November, regulator chief Christine Lagarde admitted that her son had lost ‘almost everything’ on investments in digital assets, despite numerous warnings.