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Introduction
Hyperinflation, an economic disaster characterized by astronomical hikes in price of goods and services, and the resultant overnight erosion of a currency's value, has become synonymous with the economic devastation that countries such as Venezuela and Argentina have experienced.
While traditional approaches, like currency redenominations or price controls, do little to remedy the situation, cryptocurrencies such as Bitcoin or stablecoins are increasingly becoming attractive alternatives. With Bitcoin's independent and decentralized nature, as well as stablecoin offerings that are tied to more reliable fiat currencies, such as the US dollar, these virtual assets have created a beacon of hope in protecting one from the worst forms of inflation. But will crypto be able to provide a truly sustainable solution for economies teetering on the edge of collapse?
Causes and Consequences
Hyperinflation is an extreme form of inflation in which prices balloon wildly, with the value of a nation's currency shrinking fast. This creates a spiral of chaos and the breakdown of society. While numerous factors can contribute to hyperinflation, it is often a result of significant political unrest, unsound economic policies, and excessive unbridled money printing, resulting in a complete loss of faith in the government and institutions administering the country and economy. With few exceptions, those governments that fail to keep confidence in their currencies use this measure, thereby hastening their economies' destruction.
In 2024, hyperinflation continued to wreak havoc on Venezuela. A far cry from the zenith reached in 2018, but nonetheless, it was a clear indication of unimaginable economic hardship. Venezuela's crisis is brought about by the country's persistent reliance on oil exports and an ill-driven economic policy. The country's inflation rate has fallen from 190% to 60% this year, but many analysts expect inflation to return to 150% as early as 2025. Governmental efforts have not managed to stabilize its economy and currency, and greater peso depreciation increases poverty levels. Zimbabwe, suffering from hyperinflation during the 2000s, is again entangled in unremitting inflation, with rates close to 600% in 2024. Record-breaking inflation has revived apprehensions about another currency collapse as the central bank grapples with monetary overexpansion.
Hyperinflation often follows a three-stage progression:
First Wave: Inflationary Build-Up
This first stage, characterized by increasing government debt and unrestrained spending, has 10-50% annual inflation rates. While it is still possible to reverse course and restore the economy in this stage if appropriate action is taken, historically, this was the stage of early 2000s Argentina, when that country defaulted on its debt and ended the peg between its currency, the Argentine peso, and the US dollar.
Second Wave: Accelerating Inflation
As the economy tanks and government debts build up, a deadly spiral begins when the government prints money excessively to attempt to remedy the problem. This could result in inflation rates above 50% per year, the second phase of accelerating inflation. This phase was observed in Venezuela between 2014 and 2017 when inflation dramatically grew from 56% to over 2,600%. Similarly, Zimbabwe's inflation rate increased in 2006-2007 from 100% to more than 11,000%. Citizens turn away from the local currency to foreign currencies or hard assets to store value.
Third Wave: Full-Blown Hyperinflation
When inflation exceeds 50% per month, the economy reaches the last stage of hyperinflation. In 2018, Venezuela reached this threshold as, through that year, prices had been doubling every 26 days. In 2024, Zimbabwe is feared to be on the verge of repeating this pattern since inflation surged at 600%, with effective monetary controls by the government still a challenge. Such a failure of policy measures quickens the collapse in which citizens increasingly employ foreign currencies, hard assets, or more recently cryptocurrencies to protect their savings and earnings.
Consequences of Hyperinflation
The social and economic consequences of hyperinflation are tremendous. In Venezuela, prices for basic goods have soared so high that many people can no longer afford food, let alone anything else. By October 2024, the minimum wage, adjusted for inflation, remains below US$10 per month, meaning the great majority of this population desperately tries to survive on a meager pay. In Argentina, inflation has decimated savings, leaving close to 40% of the population in poverty. The fast devaluation of the Argentine peso has significantly eroded purchasing power, while government attempts at currency stabilization have been, by and large, ineffective. In Zimbabwe, basic groceries like bread have risen to 15,000 ZWL, while growing inflationary pressure has caused social unrest that culminates in protests against the unsustainable cost of living.
Traditional measures have failed: interest rate increases, price and capital controls, and currency redenominations. In Zimbabwe, for example, there have been at least four currency redenominations since 2008, removing zeros from its currency each time but failing to fix fiscal instability.
In turn, Argentina also performs all types and forms of currency resets, yet confidence in the Argentine peso still remains very low.
Beyond economics, hyperinflation destroys social structures and makes inequality worse. Those who can hold foreign currencies or hard assets are better insulated from this mess, while the rest genuinely suffer due to the collapsed value of a national currency. During more profound hyperinflation, many people seek alternative means of saving their capital, including cryptocurrencies that offer protection against inflation, and allow conducting transactions outside the traditional financial system.
The Promise of Crypto
From speculative investment to an essential tool of survival, cryptocurrencies play an increasingly significant role in countries like Argentina and Venezuela following their economies' hyperinflation. Bitcoin and stablecoins are becoming the new staples that offer a safer haven where conventional systems have fallen short.
Bitcoin
In 2024, with an incredible 276% inflation, Bitcoin started gaining popularity as a hedge against the sharply devaluating Argentinian peso. Unlike centralized fiat, the supply of Bitcoin is capped at 21 million coins with a stable emissions schedule, thus protected from sudden increases in supply. These features make it immensely appealing in a country where storing wealth in the local currency is at risk of complete erosion. Presently, Argentina enjoys one of the most active Bitcoin markets in the world. For example, between 2023 and 2024, the country saw over $91.1 billion in cryptocurrency transactions, pushing Brazil down the list.
However, while Bitcoin has its appeal, the inherent volatility of the investment means that, for many, it really is better thought of as a long-term store of value rather than as some kind of day-to-day transactional asset. Some Argentinians use it to flee inflation, while others use the more stable alternative in stablecoins for everyday transactions.
Technical Analysis on Bitcoin
BTCUSD, Weekly
In the Weekly timeframe, BTCUSD formed a bullish flag pattern. The price has reached the upper boundary of the flag, but there may be a small bounce before the Bull Run starts.
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If the price breaks the upper trend line, it will start to rise to 74000 and then to 90000, corresponding to 161.8 Fibonacci;
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A rebound from the trendline could drop Bitcoin to 60000 and then already start rising.
Stablecoins
Stablecoins such as Tether USDT and USDC have become critical in countries like Argentina and Venezuela for holding the lines of financial security. These coins are pegged to the US dollar, making them a safe haven for hyperinflation-torn economies. In Argentina, 61.8% of all crypto-asset transactions are stablecoins – significantly above the global average. The trend also reflects a preference for a reliable store of value and efficient medium of exchange in light of severe currency devaluation.
For example, stablecoin trading volume surged when the Argentine peso slumped to less than $0.004 in July 2023. By the end of 2023, stablecoin transactions had already jumped to over $10 million per month as citizens sought ways to protect their wealth from the government’s economic reforms, including a 50% peso devaluation.
In Venezuela, the economic collapse has lasted more than a decade; crypto, especially stablecoins, became a vital alternative to the quite unstable bolívar. Despite government crackdowns and a failed national cryptocurrency experiment in Petro, high crypto adoption has been recorded amongst the populace. Crypto accounted for 9% of the $5.4 billion sent to Venezuela this year as remittances, underlining crypto's sustaining role in keeping financial lifelines open.
DeFi and Remittances
Cryptocurrencies are also taking over both the landscape of basic financial services and cross-border remittances. In countries like Venezuela and Argentina, where the traditional financial systems have gone haywire, many depend on DeFi platforms to access basic services such as loans and savings. Cryptocurrencies also get around the expensive and painfully slow traditional remittance systems. In the case of Bitcoin or stablecoins, Venezuelans abroad can send money home much quicker and at a fraction of the cost, giving families a better chance of surviving a decidedly impossible economic environment.
Practical Applications
Cryptocurrencies have become indispensable tools in several countries' fight against hyperinflation, offering an alternative to fiat currencies.
Brazil
Brazil's interest in cryptocurrencies is strongly linked to economic volatility and the devaluation of Brazilian real estate relative to the US dollar. By 2024, stablecoins like USDT and USDC accounted for 70% of the flow from local exchanges, reflecting the growing need for dollar-pegged assets to combat inflation. Unlike Venezuela or Argentina, which primarily use cryptocurrencies for personal transactions, Brazil's adoption is highly driven by business-to-business cross-border payments, using stablecoins as an important tool to help companies facing an unstable domestic currency.
Its rapid digital transformation has made it a big attraction for major players like Circle, in collaboration with local Brazilian firms, to allow Brazilians to make and receive low-cost, instant payments. As more companies began to conduct international trade using stablecoins, demand for traditional banking services are at risk of being superseded by these more efficient, decentralized alternatives. In addition to B2B uses, Brazilian consumers have also embraced stablecoins as protection against inflation. In total, the volume of the amount transacted in stablecoins increased 207% from 2023 to 2024, and that trend is likely to continue with Brazil's inflation still elevated.
Argentina
Amongst these countries, Argentina, which suffered from hyperinflation, represents perhaps the most striking example of crypto adoption as a tool against hyperinflation. With a currency constantly losing value, Argentine citizens increasingly use stablecoins, more precisely USDT and USDC, to safeguard their wealth. In 2024, 60% of all cryptocurrency transactions in Argentina involved stablecoins – a much higher proportion than the global average.
Argentinians use stablecoins not just for large purchases or savings but even for buying groceries and paying utility bills. Inflation woes have similarly pushed the adoption of Bitcoin in the country, but many see it as too volatile for daily use compared with stablecoins pegged to the US dollar. The boom in digital dollar alternatives reflects a great change in how Argentine citizens manage their finances in a hyperinflationary economy. Besides that, a peer-to-peer market has also emerged in Argentina as consumers increasingly trade digital currencies outside the formal banking system to avoid heavy taxes and currency controls.
Venezuela
In Venezuela, where hyperinflation has driven the bolívar to rapid depreciation, cryptocurrencies have become a huge part of the economy. While the Petro experiment, the Venezuelan government's state-backed cryptocurrency, fell apart in 2024, the country's citizens have adopted Bitcoin and stablecoins en masse. This year, the usage of cryptocurrencies as remittances saw a large jump: 9% of Venezuela's $5.4 billion in annual remittances are now transferred via crypto. In large part, remittances from nationals living abroad are a lifeline to millions of families back home. Cryptocurrency transactions provide faster, cheaper, and safer ways to send money than regular remittance services, which have high fees and can take up to several days to complete.
Bitcoin also strengthens its position as a stored value in Venezuela, especially for those who want to hedge their savings against hyperinflation, which reached 400% in 2023. However, by October 2024, this figure had decreased by several times. The failure of the Petro and further reliance on decentralized alternatives are perfect examples of how distrust in government-controlled assets have led to the organic adoption of independent digital currencies. Crypto mining in Venezuela also continues to be ultra-volatile, even as government crackdowns make a mess of the country's fragmented landscape with cryptocurrencies.
Zimbabwe
Zimbabwe's economic challenges are well known, with the country struggling to contain a hyperinflation rate of over 300% in 2024. Over the years, Zimbabweans have used foreign currencies, particularly the US dollar, but access to such currencies has become highly constrained. This has made cryptocurrencies such as Bitcoin and USDT popular ways of preserving savings and doing business.
Unlike Argentina or Venezuela, there are no strong P2P markets in Zimbabwe. Nevertheless, people in Zimbabwe have gradually become aware of the potential benefits a decentralized asset could offer them in trying to circumvent the crippling economic policy and sanctions against their country. While still lagging behind some of the other countries above, crypto remittances have become increasingly popular, as families utilize blockchains as a better way to transfer money over borders.
Nigeria
Nigeria has grown to become one of Africa's largest cryptocurrency markets. Despite the attempts by the Nigerian government to launch a CBDC named eNaira, the citizens have been more attracted to Bitcoin and Ethereum, among others. In 2024, Nigeria ranked second in the world in crypto adoption, according to the Global Crypto Adoption Index. Filipinos and Nigerians also use cryptocurrencies as a hedge to overcome the devaluation of their respective currencies, the peso and naira, respectively, and exorbitant transaction costs characteristic of traditional banking.
The response of the Nigerian government has meanwhile remained mixed. On the one hand, it attempts to regulate crypto exchanges, while on the other, it embarks on promoting the use of the eNaira. However, the decentralized nature of Bitcoin makes control very hard for governments, and Nigerians continue to prefer it as a means of value storage and for cross-border payments. Nigeria's P2P market has grown dramatically, with crypto trading volumes topping $200 million monthly in 2024.
Conclusion
The rise of cryptocurrencies in hyperinflated economies highlights a critical shift in how individuals respond to financial crises. Cryptocurrencies like Bitcoin and stablecoins offer immediate, practical solutions for preserving wealth and facilitating transactions when traditional currencies fail. However, while they provide valuable tools for individuals, they are not a substitute for the fundamental economic reforms needed to address hyperinflation's root causes. Sustainable recovery depends on governments implementing sound fiscal and monetary policies, and restoring confidence in national financial systems. Cryptocurrencies can support this transition but must be part of a broader strategy to achieve long-term economic stability.
This article is only for informational purposes and should not be taken as financial or investment advice.
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