Iran’s Cryptocurrency Gambit:
In an era of deglobalization, rising authoritarianism, and social unrest, cryptocurrencies may be the last thing on people’s mind. Yet this phenomenon may be the very key to rectifying these dangerous trends.
In the words of NYU Professor Nassim Nicholas Taleb, “[Bitcoin is] an insurance policy against an Orwellian future.”
In recent years, cryptocurrency usage has dramatically increased across the developing world—notably in authoritarian states. In Iran, digital currency has come to be seen as a safe haven asset by citizens and as a tool to circumnavigate trade sanctions by the government.
As the pandemic ravages Iran’s already floundering financial system, Bitcoin has become Iran’s saving grace.
The questions must be asked: why now? And what does this portend for the future?
A FLAILING ECONOMY
Iran's Inflation rate from 1984 to 2021:
Since President Trump withdrew from the Iran Nuclear Deal and re-imposed sanctions in 2019, Tehran has witnessed unprecedented stagflation. The dramatic decline in oil exports—from 2.5 million barrels per day (bpd) in April 2018 to roughly above 200,000 bpd in June 2020— in light of trade sanctions and a drop in lingering oil-demand amid the pandemic has catalyzed an inflationary spiral (Al Jazeera).
Cut off from foreign trade and investment and facing a looming second wave of coronavirus, Iran will struggle to effectively curb the inflation rate, which reached 41.06% in 2019 (Statista). Indeed, Iran will likely remain one of the most inflation-prone countries as 2020 draws to a close (Iran News Update).
Declining Fiat Currency
As the inflation rate skyrockets, the Iranian rial depreciates by the day—now merely a glorified banknote whose only real value lies in the Islamic calligraphy that adorns its borders. Since August 2019, the rial’s value has dropped by half from 111,000 rials per dollar to 223,000 rials per dollar as of late-July (Atlantic Council).
According to the reputed Iranian economist Vahid Shaghahi, the common man is unable to purchase essential consumer goods, which are generally tied to the US dollar rate, with his stash of worthless fiat currency. The average household’s purchasing power has declined by nearly 40% over the course of 2020 (Al Jazeera). Due to US sanctions, citizens are unable to transfer funds into foreign bank accounts as governments fear that leniency towards Iran will incur the wrath of President Trump (WKZO).
THE SHIFT TO CRYPTO
The Iranian rial’s morbid devaluation and exemption from the forex space has induced a shift towards Bitcoin. Despite the Central Bank of Iran’s (CBI) ambiguous regulations and underdeveloped blockchain technology infrastructure, there has been a surge in long-term investors looking to “hedge their capital against inflation” according to Cointelegraph.
Furthermore, the government subsidized electricity has inspired many citizens to take up e-mining due to the cheap costs. Bitcoin has allowed Iranian citizens and even some businesses to circumvent the global banking system, monopolized by the US, allowing them to place their cash in a more stable global currency. More remarkably, the digital currency’s performance has come to mirror safe haven assets like gold, which is seeing all-time highs.
The Iranian government’s rampant corruption, bellicose foreign policy, and failure to mitigate the pandemic’s spread has impoverished the majority and laid clear the regime’s inadequacies. According to Al Jazeera, nearly 70% of the population will be under the poverty line by the end of 2020.
The shift to Bitcoin demonstrates that the people and the government are not one entity. The people no longer have faith in the central government, much less its central bank whose attempts to control the currency has brought the nation to such dire straits. They just want to survive.
Over the past two years, the regime has realized that cryptocurrency could be Iran’s only hope for economic recovery. On February 26, the commander of the Islamic Revolutionary Guard Corps Saeed Muhammad stated, “To circumvent sanctions, we must develop solutions such as the exchange of products and the use of cryptocurrencies with our partnerships [in other countries]" (Cointelegraph).
In July, Asia Times reported that the state-run power generation, transmission, and distribution company Tanavir has lowered the electricity tariff by 47% to encourage e-mining. However, government support has come with increased “currency smuggling regulation”—forcing crypto exchanges to register with the CBI—in order to monitor and prevent capital outflow (Coindesk).
In 2018, Iran’s President Rouhani supported the development of a sovereign cryptocurrency called “Paymon,” backed by gold. However, it has not seen much success—yet another sign of the people’s loss of confidence in their nation’s banking system (RT America).
The failure of Paymon and the rise of Bitcoin demonstrates that Iran’s people and the regime are not one in the same. And this scares the government.
THE CRYPTO-RACE AND A RISE IN PRICE
As the international community remains firmly Iran-averse, the nation’s growing cryptocurrency activity will likely result in a rise in Bitcoin’s price. On January 3, Bitcoin’s value shot up from $8,000 to $8,430 when the regime launched a missile attack on a US military base in Iraq (Cointelegraph). This example may point to Iranians’ anticipating further economic sanctions and frantically turning towards cryptocurrency to retain their contemporary cash value.
Likewise, Iran’s global hash rate —which is a country’s share of the blockchain’s network and potential to override the system—has grown to 4% within the last year (Coindesk).
Famed broadcaster Max Kreiser predicts that as leaders like Maduro and Khomeini gradually expand their command over the bitcoin network, the United States will look to offset these gains and seek 20% of the global hash rate (Cointelegraph). In the race for a greater hash rate to dominate the network, Kreiser anticipates Bitcoin prices swelling to between $400,000 to $500,000.
THE RIGHTS OF MAN
Bitcoin prices will likely surge in the coming years, as more Iranians look to cryptocurrency as the only source of self-sustenance.
Although the nature of Bitcoin is to provide a stable currency immune to government manipulation, rather ironically, it has become a political tool for the people. Bitcoin allows the people of Iran—and of other authoritarian regimes—to be a part of a globally integrated financial system insular to their nation’s volatile economy.
The people are becoming independent actors who demand that their right to life, liberty, and property comes before their leaders’ geopolitical entanglements. In the words of Kreiser: “The truth is if you want individual sovereignty, if you want justice, if you want uncensorable, non-confiscatable, indestructible wealth, there’s only one way to go — and that’s Bitcoin” (Cointelegraph).
Written by Pavan Nagaraj
Edited by Jeremy Knopp, Michael Ding, Gihyen Eom, Calvin Ma & Alexander Fleiss