Daniel Cawrey at CoinDesk has a must-read piece on wealth transfer and the effect Bitcoin has on this.
The natural starting point here is March and April of 2013, when a financial crisis gripped Cyprus and Bitcoin’s value skyrocketed to a high of $266.
Cawrey sets out to investigate the relationship between these two events.
The crisis in Cyprus began in 2012 but dominated headlines for a weekend in March when the country reached a bailout deal with the EU and the IMF. As part of the final deal, levies were placed on domestic bank deposits to help fund the bailout (or “bail-in,” as some in Cyprus described it).
Shortly thereafter, Bitcoin’s value shot up.
Cawrey’s question is what the exact correlation was.
The day the bailout was first announced, Bitcoin broke through $50. Shortly thereafter, Bloomberg published a piece about fleeing the euro for Bitcoin.
European bank account-holders who read that certainly thought long and hard about the vulnerability of their wealth. New Bitcoins started getting purchased, suggesting a wealth transfer effect.
Since April, the price of Bitcoin has fairly steadily risen, with day-to-day swings but an obvious upward trend. Cawrey says this could be just a slow wealth transfer.
What causes this wealth transfer, he argues, is interesting. Cyprus already had its credit rating downgrading twice before the bailout, and people weren’t snapping up Bitcoin either of those times.
And capital controls were nothing new by March 16, so that doesn’t sufficiently explain what would spark wealth transfer, either.
Rather, Cawrey suggests it might be a full-blown lack of faith in a country (or at least its monetary system) that could spark Bitcoin wealth transfer.
Consider this in light of Argentina’s surging interest in the currency. Inflation is high, and capital controls are tight, but perhaps there is a deeper total lack of faith driving that activity.
This hypothesis could be validated in the event a government collapses soon. Thailand seems to have banned Bitcoin (read: tried to ban it) to prevent an outward flight of capital as that country deals with its troubles.
An interesting take. Like many Bitcoin-related questions, we’ll have to wait and see.