Amid ongoing political unrest in the South Asian country, Sri Lanka has issued a warning to its residents against adopting Bitcoin, saying it is “essentially out of control”. The country’s central bank, CBSL, reminded the public last week that it has not granted any company a license or other authority to operate in the country and that it does not consider cryptocurrencies to be legal money in the country.
Pursuant to Instructions No. 03 of 2021 under the Foreign Exchange Act, No. 12 of 2017 issued by the Foreign Exchange Department of CBSL, Electronic Funds Transfer (EFTC) cards, such as debit cards and credit cards, are not allowed to be used. for payments related to virtual currency transactions,” the bank said in the statement posted on its site.
The Sri Lankan rupee fell significantly against the US dollar by more than 44%. The Sri Lankan economy is in shambles and faces currency substitution risk. The country’s political leaders are organizing to get a bailout from the International Monetary Fund. The process is long and time-consuming. In this regard, some crypto industry experts have noted that the current situation has created a favorable case for the adoption of crypto by the Sri Lankan population.
“Crypto adoption is typically higher in economies facing fiscal uncertainty. Like Ukraine, crypto is likely to be used to channel monetary relief for Sri Lankans. and low transaction costs make a compelling case for crowdsourcing economic aid using crypto for Sri Lankans,” says Sharat Chandra, VP of Research and Analytics at EarthID, a global company of blockchain.
What is the progress of cryptocurrency in Sri Lanka?
Some Sri Lanka-based crypto industry experts in a conversation with Outlook Money said that since Covid-19, the Sri Lankan Rupee has experienced rapid devaluation and is now even more shaken by the current political unrest. . This has prompted many people to explore alternative investments and crypto has been one such investment.
“Global crypto demographics primarily consist of Generation Z, who are tech savvy and distrustful of traditional investment vehicles. PaxFul, one of the leading P2P trading platforms, has seen growth of over 730% in 2020-2021 from Sri Lanka alone,” says Sanjay Mendis, a Sri Lanka-based cryptocurrency and blockchain strategist.
Notably, in 2021, the Sri Lankan government formed a panel to recommend a regulatory framework covering the growth of digital banking, blockchain, and cryptocurrency mining. The development of an integrated digital banking, blockchain and cryptocurrency mining system is crucial for Sri Lanka to keep pace with its regional neighbors while expanding international trade, according to the press release issued by the government.
A 2021 survey by blockchain analytics firm Chainalysis identified Central and Southeast Asia as one of the top regions in the world for cryptocurrency adoption. The South Indian island country of Sri Lanka has lagged behind other Asian countries in the adoption of cryptocurrencies. There is only one company that currently accepts cryptocurrencies as payment, and it was not listed in Chainalysis’ Global Cryptocurrency Adoption Index for 2021.
Mendis further added that Sri Lanka now has over 320,000 crypto holders which will only grow in the current environment. “Many companies are also exploring offering crypto as an alternative investment option for their clients and even some international schools have reached out to me to adopt crypto education in their curricula,” he said.
Is crypto useful for Sri Lanka in the current economic crisis?
What is the fundamental impact of an economic crisis in most countries? It is the fall in the value of its currency against the USD. However, the USD is also rapidly falling out of favor due to poor fiscal policies. Recently, India bought oil from Russia using the INR, indicating an uncertain future for the USD. Most global reserve currencies have a lifespan of 100 years, and the USD is in the final decades of that cycle.
Although the sell-off in the cryptocurrency market in recent months has not had much of an impact on broader financial markets, rising energy and food prices and imbalances between the he supply and demand, partly due to the Ukrainian conflict, fuel the world market. inflation (IMF), according to the International Monetary Fund.
“However, Sri Lanka faces unprecedented inflation (up to 70% by some estimates), and a flight to commodities (gold and silver) is natural at such times. -currencies retain or gain in value, a flight to crypto is also likely, especially if backed by intrastate investors who aggressively market it as an investment to less-informed retail investors,” says Utkarsh Sinha, managing director of Bexley, a boutique investment bank.
“Even a large-scale buying by Sri Lankan retail investors is unlikely to drive global crypto prices higher,” Sinha added.
Purushottam Anand, founder and CEO of law firm Crypto Legal, believes that the Sri Lankan rupee has depreciated significantly and inflation is rising, people can use Bitcoin and other top cryptocurrencies to protect against inflation and other systematic risks associated with the local government and economy. “Bitcoin is global in its usage and price movement and is comparatively less affected by economic conditions and inflation in a specific jurisdiction,” he added.