In March/April 2013, the exchange rate of bitcoin soared as a consequence of harsh capital controls introduced in Cyprus. Many people came to the conclusion that governments and banks couldn’t be trusted with their hard-earned savings, and started looking for alternative ways to store value, out of reach of predatory central banks. Bitcoin came to the rescue, and its price shot up as many people rushed to take money out of their saving accounts and buy bitcoin instead.
The recent spike in the exchange rate of bitcoin, which went up 10 percent in the last 24 hours – something unheard of in the last few months of relative stability – has been linked by many analysts to the more and more frequent rumors of Grexit – the spectrum of the possible exit of Greece from the eurozone and perhaps from the European Union (EU) itself.
Before a meeting of eurozone finance ministers, seen as the last realistic chance to reach a deal before Greece has to pay the International Monetary Fund (IMF) at the end of June, Greek PM Alexis Tsipras showed no sign of bowing to demands for cuts in pensions and increases in VAT, The Guardianreports. Instead, Tsipras accused the fund of “criminal responsibility” for the situation and said lenders were seeking to “humiliate” his country.
Yanis Varoufakis, the Greek finance minister, challenged the EU leaders. “Greece will only commit to [spending cuts and reforms] if Europe agrees to a debt restructuring, investments and an end to the liquidity crisis,” he said. The EU leaders, especially Germany’s Merkel, do not want next week’s summit hijacked by Greece, notes The Guardian, but that appears inevitable without a breakthrough.
Joshua Scigala, co-founder of Vaultoro, a firm that holds bitcoin for its customers and allows them to exchange it for gold and vice versa, toldReuters that Greeks are buying the currency as they lose their trust in the authorities. Over the past two months, Vaultoro has seen a 124 percent increase in business from Greeks.
Reuters notes that, though bitcoin's value has previously been highly volatile, it has stabilized over the past six months and is increasingly treated as a legitimate and potentially valuable asset by major financial institutions, and even by governments such as Britain's.
"You have people worrying about their families' wealth or their life savings, and worrying that their money might be locked up in banks,” said Scigala. “They'd rather hold money in a private asset like gold or bitcoin. Some people aren't waiting for the government to figure out an exit plan and are doing it for themselves.”
If the Greek situation isn’t solved soon, more and more Greeks concerned about capital controls can be expected to take their money out of the country’s banks and move it into bitcoin.
Reuters notes that a bitcoin-like digital currency, backed either by Greece's assets or future tax revenues, could conceivably be introduced as a parallel currency in Greece. Varoufakis wrote a blog post in February proposing a similar IOU-based currency, which he dubbed Future Tax Coin (FT-Coin). Though he is not impressed by bitcoin as a currency, Varoufakis is persuaded that its underlying blockchain technology could be put to effective use in troubled economies.
Recently, CNBC contributor Brian Kelly, the author of “The Bitcoin Big Bang: How Alternative Currencies Are About to Change the World,” proposed a similar bitcoin-like solution for Greece’s troubled economy.