Canada may prove to be a sweet spot for bitcoin, setting it apart from emerging markets where governments are cracking down on the virtual currency.
Tufts University’s Bhaskar Chakravorti isn’t surprised Canada is opening more bitcoin ATMs at the same time that China’s central bank is putting the brakes on it. According to Mr. Chakravorti, bitcoin is on a predictable path to thrive in the West and fail in emerging markets.
“If [alternative currencies] are going to take off anywhere, it will be in countries like Canada or Sweden,” said Mr. Chakravorti, associate dean of international finance at Tufts University. “These countries are usually open-minded about technology, and at the same time there is enough regulation to at least minimize banking crises.”
Governments across Australia, Canada, Germany and the United States have essentially decided to leave bitcoin alone for now.
Meanwhile, Chinese and Indian governments have been increasingly wary of the virtual currency. China’s central bank banned financial institutions from bitcoin transactions on Dec. 5, and later forbid yuan deposits into BTC China, at the time the largest bitcoin exchange in the world. The Reserve Bank of India issued a warning against bitcoin on Dec. 24, prompting major exchanges to shut down. Thailand declared buying and selling of bitcoins illegal last July.
Bitcoin will never take off in emerging markets because these regimes won’t allow it, and the divergence in policy will make bitcoin just another novelty for the Western elite, says Mr. Chakravorti.
The past few years of easy monetary policy have drawn huge volumes of speculative investment into emerging markets, but as the U.S. Federal Reserve pulls back on its unprecedented stimulus, these markets are now vulnerable to capital flight. The World Bank warned on Tuesday that capital inflows to developing countries could fall as much as 80 per cent in the next several months, as markets across the globe adjust to the Fed’s tapering move.
“Hot money rushed into emerging markets, and they got fat and lazy,” says Mr. Chakravorti. “These countries are anxious about monitoring currencies because the money needs to be paid back now.” They will grow even more protective of capital controls, he predicts, as governments in India, Turkey and China fight against corruption drains to their economies.
This division has yet to play out in the bitcoin market. The United States is by far the largest user base of bitcoin, representing 27 per cent of all active bitcoin nodes. However, China and Russia come in second and third, respectively, with about 8 per cent of global nodes each.
Mr. Chakravorti ultimately doesn’t see bitcoin as anything more than a “glorified hobby,” largely due to the wild volatility of its price.
Bitcoin’s decentralization is a large part of its appeal to libertarians, and alternative currencies have grown in popularity in light of last year’s Edward Snowden leaks.
Bitcoin is a technologist utopian dream, says Mr. Chakravorti, and this and investor speculation has propelled the cryptocurrency to stardom.
“A growing community in the West has become very skeptical of government,” says Mr. Chakravorti. “Bitcoin is a manifestation of that. It could be cardboard chips, or bitcoins, as long as it’s not backed by government.”