From an obscure footnote known only to the tech-savvy in a much more isolated part of the Internet, Bitcoin has transformed into a significant player in today’s financial landscape.
But while we are all well aware of the impact BTC is having on financial markets (a more or less permanent fixture of the news cycle), we often forget to take a step back and see how this new frontier is impacting real change and real people. .
For people who have historically been excluded from traditional banking due to barriers such as poor credit or lack of access, BTC has emerged as an important financial tool. The impact is most profound in developing countries, where access to banks remains difficult for many.
Here, Bitcoin is more than a currency or an investment. It is a means of engaging in essential financial activities that are otherwise inaccessible, such as sending and receiving money.
Forget for a moment the speculative potential in terms of financial gain. Bitcoin’s true value lies in its potential to level the financial playing field by providing access to financial tools that were previously exclusive to those with a solid economic background.
Bitcoin’s continued promise, even amidst its fluctuating value, is its contribution to financial inclusion and a beacon of hope for more equitable access to financial services around the world.
Historical Context of Bitcoin and Financial Inclusion
Bitcoin was born during the financial turmoil of the late 2000s, and its creators aimed to create a decentralized currency that could bypass the traditional banking system and help society overcome a repeat of the 2008 financial crisis.
This vision was not just technical, but very ideological, seeking to give individuals financial autonomy.
Essentially, Bitcoin promised to make financial services accessible to anyone with internet access, regardless of their status in traditional financial institutions.
This promise has been practically realized in countries like Nigeria where many people do not have access to traditional banking services. In Nigeria, Bitcoin has become more than a speculative asset. For example, given Nigeria’s significant diaspora, Bitcoin can facilitate remittances, allowing Nigerians living abroad to send money home more efficiently and at lower costs than traditional banking services.
In Argentina, Bitcoin has emerged as an important financial tool amid the country’s ongoing economic challenges, including high inflation rates and currency devaluation. For Argentines, Bitcoin offers a more stable store of value compared to the national currency, the Argentine peso, which has suffered from significant depreciation over the years.
A similar trend can be seen in Ghana, where annual inflation rates are expected to range between 13 and 17 percent in 2024.
In Venezuela, a country struggling with political instability and economic crisis, Bitcoin has found a unique role beyond being a means of preserving wealth in the face of hyperinflation. Here, Bitcoin is utilized to support microfinance initiatives and charitable donations, directly impacting the lives of people in need. Organizations and platforms leveraging cryptocurrencies can provide direct financial support to the poor, bypassing traditional financial systems that may be inaccessible or unreliable.
It also provides entrepreneurs and small business owners around the world with the means to engage in international transactions without the need for a bank account or the risk of currency devaluation. It is a hedge against crisis and a vessel of freedom against authoritarian regimes, but the spirit of decentralization is not.
The Rise of Bitcoin ETFs and Institutional Interest
By allowing investors to gain exposure to Bitcoin’s price movements without the complexities of purchasing, storing, and managing the digital currency themselves, the BTC ETF provides a familiar, regulated path for institutional investors to enter the Bitcoin space.
Previously, Bitcoin’s volatile and unregulated nature deterred many institutional investors. However, with the advent of ETFs and other regulated investment products, these companies can now participate in the cryptocurrency market, leading to significant capital inflows into Bitcoin and the broader cryptocurrency market, as well as increased legitimacy and stability, which will only increase with further adoption. I will do it.
This institutional foray into Bitcoin has two implications.
On the one hand, it introduces a level of stability and liquidity never seen before, potentially making Bitcoin a more attractive asset for both retail and institutional investors.
On the other hand, it represents a shift away from Bitcoin’s original spirit of decentralization and financial democratization.
Another point to consider is that institutional interest is not limited to private for-profit companies. Countries like El Salvador recently took control of Bitcoin treasuries, showing that the government’s general attitude toward cryptocurrencies is slowly but surely changing. That also changes with the times.
Potential impact of institutionalization on accessibility
On the one hand, these developments could strengthen Bitcoin’s attractiveness by contributing to market stability and reducing volatility. This is a major concern hindering the adoption of cryptocurrencies by a wider segment of the population.
The entry of institutional investors could increase the liquidity of the Bitcoin market, potentially making it a more reliable asset for individuals and businesses around the world.
However, the flip side of institutionalization is that it is likely to increase barriers to entry for marginalized groups.
Accessibility is key to Bitcoin’s appeal to these groups. In other words, you can participate in the financial system with just a smartphone and an internet connection. As regulatory frameworks become more stringent and markets become more institutionalized, the process of acquiring and using Bitcoin may become more complex.
Requirements such as strict identity verification and financial compliance are necessary to prevent fraud and secure financial security, but may unintentionally alienate people who do not have formal identification or live in areas with less regulatory clarity.
Moreover, the shift towards institutionalization could lead to concentration of wealth and power within the Bitcoin ecosystem, reminiscent of traditional financial systems.
This concentration could undermine Bitcoin’s decentralized spirit, making it more focused on serving institutional benefits rather than empowering individuals.
The problem lies in finding a balance. Leveraging institutional interest to bring stability and legitimacy to Bitcoin while maintaining its innovative commitment to financial inclusion.
Financial inclusion and cryptocurrency adoption
Sub-Saharan Africa, with its mix of limited banking infrastructure and high mobile penetration, has emerged as fertile ground for cryptocurrency adoption. The region, which has a smaller overall market size in terms of traditional financial metrics, has seen significantly higher levels of grassroots cryptocurrency usage.
For example, Nigeria not only ranks second in the Global Cryptocurrency Adoption Index, but it also ranks first globally in raw trading volume in sub-Saharan Africa as well as peer-to-peer exchange trading volume. Other countries such as Kenya, Ghana, and South Africa also feature prominently in the index, highlighting the widespread acceptance of cryptocurrencies as a viable financial instrument.
Cryptocurrency adoption has been driven by practical necessity rather than speculative profit, with cryptocurrencies acting as a hedge against inflation and currency depreciation.
In Ghana, where inflation surged to its highest level in two decades at the end of 2022, and other countries such as Nigeria, Kenya and South Africa facing similar economic challenges, cryptocurrencies have become an attractive means of preserving wealth. The shift to digital currencies, particularly Bitcoin, and more recently stablecoins, reflects the broader quest for financial stability and freedom.
Particularly prominent in sub-Saharan Africa, peer-to-peer transactions account for a significant portion of cryptocurrency transactions, highlighting the region’s unique position in the global cryptocurrency landscape. This high rate of P2P transactions is due to the daily use of cryptocurrencies for retail payments, remittances, and commercial transactions.
Preferring cryptocurrencies over traditional banking and financial services is not just a matter of convenience, but a necessity in regions where local currencies are falling in value, as seen in countries such as Nigeria and Kenya.
By bypassing traditional financial barriers, cryptocurrencies can provide expanded financial options to underserved markets, as exemplified by initiatives such as Empowa and Pezesha in Mozambique and Kenya, which leverage blockchain to fuel real estate development and connect MSMEs with global lenders. provide.
Balancing institutional concerns and financial inclusion
As Bitcoin continues to navigate between grassroots empowerment and institutional adoption, its future landscape presents a dichotomy.
On the one hand, increased institutional interest brings stability and credibility, potentially making Bitcoin a more viable and trustworthy financial asset globally.
On the other hand, these changes could challenge the inclusivity that has been a cornerstone of Bitcoin’s appeal, especially for minority groups and regions with limited access to traditional banking services.
A balanced approach is needed to ensure that Bitcoin remains a tool for empowerment. One potential path forward is to develop regulatory frameworks that encourage inclusivity.
Regulations can be designed to protect consumers without hindering innovation or access to cryptocurrencies. Additionally, continued support and promotion of P2P platforms can empower individuals by facilitating direct transactions without the need for traditional financial intermediaries.
conclusion
As Bitcoin evolves amid growing institutional interest, its fundamental role as an agent of financial inclusion faces challenges and opportunities. For Bitcoin to continue to serve marginalized communities, it requires a delicate balance that blends the stability that comes with institutional participation with its potential as a democratizing force.
One thing is certain. Bitcoin’s future largely depends on maintaining its essence as a lifeline for financial empowerment around the world.
This is a guest post by Kiara Taylor. The opinions expressed are solely personal and do not necessarily reflect the opinions of BTC Inc or Bitcoin Magazine.