What Role Will Cryptocurrency Play in Lebanon’s Economic Crisis?

Credits: Venezuelans produce street art out of hyperinflated banknotes  (Juancho Torres/NurPhoto via Getty Images)

Imagine yourself in a dense city with the remnants of an ongoing crisis present at every turn. Your employer pays you in local banknotes which have been rendered virtually worthless due to severe hyperinflation. You find ways to make ends meet thanks to the subsidies bestowed to select supermarket goods, however with subsidy policies changing weekly, access to financial services is purely a luxury that most cannot afford. Depending on government support is an even farther stretch, as bribes are the only way to make any progress. In these unforgiving streets, the US Dollar reigns alone and reigns supreme.

A reader is forgiven for assuming this is a series of events from the streets of Beirut, while it is in fact the daily struggle of most people living in Venezuela. Corruption and mismanagement accelerated that countries’ economic downfall and widespread commodity shortage. In case this sounds familiar, Venezuela’s timeline has been estimated to be five years ahead of Lebanon’s own crisis cycle. The measures taken by that local population serve as omens to the Lebanese people, starting with the widespread adoption of cryptocurrency.

“These days, you can even buy a car with Bitcoin”, remarks Joseph Daou, a resident of Caracas. “It took a lot of time for people to find new ways to survive hyperinflation, and crypto played a critical role for this”. With the Lebanese Lira likely to follow in the footsteps of the doomed Venezuelan Bolivar, a new economy must be nurtured.

Bitcoin has finally entered Lebanon’s chaotic financial landscape. The debate in the country no longer solely revolves around the Lira and Dollar. Today, many Lebanese are now purchasing various cryptocurrencies and investing in digital assets after the loss of trust in the Lebanese banking system.

Despite recent losses, the price of Bitcoin has realized exponential growth in the past few years, establishing itself as one of the most desired cryptocurrencies in the market today. A single Bitcoin is valued in excess of 30,000 USD as of June 2021. Those who have invested in Bitcoin in early 2013 at a humble price of about 200 USD have surely become multimillionaires today. There are speculations about the price of Bitcoin continuing to rise and eventually somewhat stabilizing, making it a very attractive investment option for many. This well-known virtual coin has caught the attention of multinational companies as well as personal investors. Tesla Motors, for example, has announced that it has purchased roughly 1.5 Billion USD worth of Bitcoin and is in talks with local environmental regulators to accept the coin as a form of currency for its products in the near future. Tesla CEO Elon Musk has been given justified credit for influencing the market value of and investor confidence in cryptocurrencies, calling it the currency of the future in a recent interview. Tesla was not in fact the first company to consider this initiative; many legitimate small and midsize businesses around the world have already begun accepting Bitcoin payments. However, with an industry titan like Tesla announcing its’ support, prices have skyrocketed and rumors are abound of companies like Apple making similar announcements soon.

Credits: Bitcoin price fluctuation over time (CoinMarketCap)

Cryptocurrency in Lebanon Today

Bitcoin surged in popularity in Lebanon shortly after the local banking system collapsed. The country has since experienced nationwide demonstrations and protests targeting government entities and private banks on several fronts; ATM machines continue to be destroyed from Beirut to Tripoli. While the uprising was stemmed by the COVID pandemic, there are yet to be any indications that the banking sector is on any path to recovery.

Unjust capital controls, coupled with a fraudulent financial system orchestrated by domestic political parties via the Central Bank, have forced Lebanese to explore alternative solutions to manage their assets beyond keeping their cash in a bank or hidden at home. Bitcoin and other virtual coins, being unregulated currencies and hence out of the reach of the Lebanese government, present a compelling alternative.

Local trading platforms and social media groups have since emerged to meet demand, cultivating another financial black market for those who still collect wages in US Dollars. These communities offer technical solutions and advice for purchasing Bitcoin and other cryptocurrencies. They are also creating a collaborative platform where peer to peer transactions can take place.

Despite the extreme challenges and embargoes that the Lebanese people are faced with in order to transfer money abroad, experts are estimating that there are millions of dollars’ worth of transactions happening in Lebanon every month.

Credits: Salameh’s open letter on virtual coins

The Lebanese Central Bank has unsurprisingly warned against the local adoption of cryptos. In 2013, Central Bank Governor Riad Salameh warned against the purchase and possession of Bitcoin and other virtual coins in an open letter. At a recent business conference, Salameh went on to state that “the price is very dangerous and can only be a bubble, and we want to protect the savings of the Lebanese people”. Considering the Central Bank’s actual actions (or lack thereof) in protecting the assets of its citizens, statements like these can only further encourage people to invest in Bitcoin.

Lebanon is well on the road to becoming another developing country with a thriving interest in Bitcoin, following in the footsteps of other nations enduring comparably ineffective governments and dire financial crises.

Drawing Comparisons From Latin American Economies

The people of Venezuela also face harsh banking restrictions that have encouraged them to think outside the box and pursue innovative ways to bypass bank and governmental regulations. A strong example is the startup financial services company called Valiu. Based in Bogota, Colombia, the technology startup is helping Venezuelans tackle hyperinflation and currency devaluation through Bitcoin-backed synthetic US Dollars.

The fintech’s (financial technology service) mission statement notes that “it is very hard to access USD or stable currency in Latin America’s depreciating and hyper-inflationary economies. We are solving that for individuals and businesses”.

Valiu offers a method of purchasing and maintaining digital tokens on a platform that can be used to buy products and services or transferred to another person at any time. By ensuring each of these synthetic Dollars maintains a direct pegged valuation to real US Dollars, Valiu managed to provide a solution for millions of Venezuelans who had to flee the harsh political and economical situation of their home country. Sending remittances to their families from abroad is now easier than ever, in comparison to the unreasonable transfer fees advertised by the Latin American USD black markets.

They are also offering currency exchanges through the platform. For example a user can buy a certain quantity of this token with Colombian pesos and then exchange it with another currency such as US Dollars without having to pay exchange fees. This is a critical benefit as it makes it possible to bypass having to hold funds in the form of highly volatile Venezuelan Bolívars.

The service presents an alternative for having physical cash without having to carry it in person. They offer their users the ability to access their funds from anywhere around the world at any time, most importantly ensuring that digital wallets and their associated transactions are outside of governments’ and banking system’s reach and control. The downside of these platforms is that an internet connection is necessary for access.

Valui has managed to raise millions of dollars in funds to further develop its idea thanks to several donors, amongst them USAID. The company and its CEO, Simón Chamorro, were featured in Forbes Magazine discussing their journey to secure funds.

In a conversation with Al Rawiya, Chamorro described how he saw his country going through hyperinflation and economic collapse and from there started looking for solutions outside of what he described as a “flawed central economic system”.

Credits: Investors continue to throw their support behind Valiu

He saw what was happening in Venezuela as an opportunity to provide services that guarantee financial freedom and sovereignty away from banking and government regulations, and this freedom is based on cryptocurrencies that he described to be more stable than the mainstream Fiat (regulated exchange) system. He added that he sees Lebanon passing through similar conditions as Venezuela and this could be an opportunity for some Lebanese to innovate in that field.

El Salvador is another struggling Latin American economy. After passing through a decade of a brutal civil war, they took a series of measures in 2001 to encourage economic growth. This led to a decision to cease the use of their local deteriorating currency, pivoting to US Dollars to provide more financial stability to their citizens.

In June of 2021, 20 years after dropping their local currency, the Salvadoran government took another bold step by officially declaring Bitcoin as a legal tender, cementing Latin America as a trailblazer in the adoption and integration of cryptocurrencies.

Concerns About Cryptocurrency Adoption

Will the increased demand for Bitcoin and other cryptocurrencies in countries that are faced with strict banking regulations drive mainstream adoption? While recent momentum may indicate as much, multiple experts continue to voice their concerns and consider Bitcoin to be more of an investment bubble for several reasons.

Some argue that Bitcoin isn’t an actual currency because of its limited supply or availability, reinforcing the bubble argument amid concerns about its low liquidity and high volatility. There is also an argument to be made regarding the sustainability of cryptocurrency mining; the entire crypto industry contributes an incredible amount of carbon emissions due to complex computational tasks like mining and asset management. The process to produce Bitcoin alone consumes more energy than the whole of Argentina itself. Adding the mining resources spent on other virtual coins, a considerable amount of energy is at stake.

In fact, Tesla recently retracted their commitment to accept Bitcoin payments due to increased awareness of sustainability concerns. Finally, since Bitcoin and other cryptocurrencies are essentially unregulated, they have been used for money laundering, tax evasion, and several other illegal activities.

All these considerations solidify the fact that Bitcoin investment is not at all without its risks. We can however confidently say that all currencies will converge to the digital medium in their own time. The global ecosystem that will take shape around this paradigm shift, however, is yet to fully materialize.

What is Next for Lebanon?

No one can truly predict the future of Bitcoin. We can however say that with the current pace of technology and its impact on all industries across the board, the world we live in right now will become unrecognizable in the near future. Technology will continue to reshape global banking and financial service sectors.

The Lebanese People need secure methods to save their earnings moving forward, particularly out of the hands of corrupt bankers backed by an even more corrupt government in Beirut. Bitcoin is a solution at the moment with the potential of a return on investment, though buyers must be aware that no one fully understands the dynamics of this coin and where it is headed. Constant vigilance is advised in this highly volatile environment to an extent that when we started writing this article the price of one Bitcoin was 60,000 USD and has since dropped to about 30,000 USD.

Hani Daou
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Hani Daou is a Lebanese electrical engineer based in California. After graduating from the University of California San Diego, he held roles in optical system development with Silicon Valley giants like Intel and Apple Inc. Hani recently rejoined MultiLane, a high-speed test equipment vendor based in Lebanon, in order to bring global attention to Lebanese innovation and contribute to local hi-tech job creation. As a passionate writer he regularly produces publications relevant to the hi-speed data communications industry in addition to topics related to the multiple crises affecting Lebanon.

Ziad Mroueh
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Ziad, born and raised in Beirut moved to Barcelona, Spain at the age of 25 is a political and social activist with more than 15 years of experience working in liberal and progressive organizations in Lebanon and Spain. Ziad is an industrial engineer that works as a business & solution consultant at a technology company, he is passionate for philosophy, sociology, psychology, technology and politics. He enjoys writing for a wide range of topics.