Around the world, COVID-19 and geopolitical tensions have accelerated the adoption rate of cryptocurrencies – especially in emerging economies. While cryptocurrency investors in the U.S. or Western Europe may not see these changes as affecting them, the BIS's quarterly review clearly shows that "cryptocurrencies" in emerging economies have the potential to affect everyone.

Feels unstable

While there is a trend to focus on cryptocurrencies generated from fiat currency transactions, we also need to examine which countries' fiat currencies are most represented on exchanges where stablecoins are traded. In particular, the BIS review points to the Turkish lira and the Brazilian real.

The quarterly review by the Bank for International Settlements noted that

“In particular, the share of the Turkish lira rose from 0.3% in January to 11% in April 2020. As the lira depreciates further in 2021, its share rises from 11% in July to 26% in December 2021. This dwarfs the lira. The weight of the lira in the global foreign exchange market (0.5%).”

But the question remains, how much does this matter to people who trade in dollars? Well, a lot. While the U.S. dollar dominates trading and stablecoin trading, the Turkish lira now takes a much larger share. This means that the lira's decline now has the potential to ripple through not only the global fiat currency-based economy, but also the cryptocurrency economy.

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Source: BIS Quarterly Review

The BIS review explained that

“In addition, if certain cryptocurrency assets are widely used as a means of payment, problems with those assets – such as a disruption to stablecoins or a risky cryptocurrency asset price collapse – could spill over into the payment system and adversely affect real economic activity.”

Up together, down together?

Now there is another crisis at the doorstep of the world economy: the Russo-Ukrainian war. With the devaluation of both currencies, Chainalysis reports that trading pairs related to the Russian ruble and the Ukrainian hryvnia have soared. The daily trading volume of both currency pairs has increased more than eight times.

Chainalysis suggests that this may be a strategy for traders to minimize losses from currency devaluation.

However, the exchange order book data reveals an interesting trend. In the last few days, the volume of trading pairs involving the Russian ruble and the Ukrainian hryvnia has risen significantly (credit @KaikoData). pic.twitter.com/oeqmtKnTjS

– Chainalysis (@chainalysis) February 25, 2022