Circumventing capital controls safely with bitcoin

Tuesday 30 June 2015

Greece just moved the goalposts. It’s just not clear how that’s going to affect the game.

Greek Prime Minister Alexis Tsipras’ surprise referendum call over the weekend has totally changed the outlook for Greece. Because the popular vote will not occur until next weekend, Tsipras was in effect guaranteeing a default on their next repayment to the IMF (due today, 30 June), and with it the introduction of capital controls, which have already been imposed in anticipation.

Simply, Greeks cannot use their money as they wish. Cash had already been hemorrhaging from Greek banks over the past few weeks and to prevent a full-blown run it was necessary to limit the amount that could be withdrawn or sent abroad.

Gold

Unlike gold, bitcoin is not a good store of value - but it's a lot easier to move around

Read also: Beware of Greeks bearing fiat

There has been some speculation in bitcoin circles whether this will kickstart the next big bull run for bitcoin - talk that’s not a little distasteful, since Greece is already in an appalling state and it’s going to get worse before it gets better. Their economy has shrunk 25% over the last five years. Because capital controls necessarily decrease the amount of money in circulation, that will be another shock to a fragile economy, pushing it further into recession. With so many on the poverty line as it is, it’s likely that people will die because of the direction this long drawn-out Greek tragedy has taken.

Borderless currency

It’s here that bitcoin comes into its own - categorically not as a store of value, but as a means of moving money out of the country. If ever there was a strong use case and a right time for bitcoin, this is it.

It does seem to be the case that some Greeks have started buying bitcoin to circumvent capital controls. Registrations on the main Greek exchange, BTCGreece, have increased significantly, along with average deposits. Something similar happened a couple of years back when haircuts were imposed and capital controls introduced in Cyprus. An influx of money (some from Cyprus, some from traders looking to profit on the increased interest) doubled bitcoin prices over the course of a week or so, and then spiked them up to their all-time high in the $260s in April 2013 after capital controls were relaxed again and funds were more readily available. Of course, that didn’t last long, and the bubble quickly burst. You have to wonder whether this fluctuation didn’t simply represent a further transfer of wealth away from Cypriots to speculators who called the top correctly.

The landscape is very different now, both for Europe and bitcoin. And we’ve had a few lessons about volatility in the meantime too. Greeks who are worried about losing 50% of their net worth in a currency devaluation on returning to the drachma hopefully won’t look without thinking to an alternative currency that is subject to wild swings in value itself. And yet the interest is there.

Those Greeks who are smart enough and tech-savvy enough to explore the possibilities of bitcoin will hopefully recognise the risks of the market playing havoc with their would-be safe haven. If they have the presence of mind, they might use bitcoin as a way of moving money - as a means of exchange - but not as a store of value. If it was me, I’d be sorely tempted to buy a few bitcoins and send them to a reputable exchange - or two or three exchanges, for safety - with a good track-record of keeping its customers’ money safe. Selling them immediately and keeping the USD (ideally) on the exchange would be significantly easier than buying gold or organising a foreign bank account. Keeping funds on an exchange goes against everything that MtGox and a dozen other scandals has taught us. But the landscape for exchanges is different now, too - and in terms of the immediate risk of Grexit and the prospect of not being able to access your own money, it’s possibly the lesser of two evils.

Alternatively, there are outlets that enable you to buy gold and other precious metals for bitcoin, such as Vaultoro, keeping them in an insured vault until you want to sell again or take delivery.


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