Distrust in Lebanese banks spurs bitcoin boom

When Maher, an engineer in his mid-30s, returned to Lebanon flush with cash from working in the Gulf, he deposited his hard-earned savings in a bank – believing they would be safe.

But as Lebanon has spiralled into its worst economic crisis in decades, banks have imposed informal capital controls that force people to withdraw their savings in Lebanese pounds at the official exchange rate that effectively values their savings at 40 percent less than what its worth on the parallel market.

“Nothing can prepare you for the shock of this,” Maher told Al Jazeera.

But Maher, who asked his surname be withheld to protect his privacy, is not standing by helplessly. He is trying to move what is left of his savings out of Lebanon via a financial instrument many in the country have not embraced – until recently.

Bitcoin.

“Suddenly everything turns upside down and all the options are open,” said Maher.

With confidence in Lebanese banks at an all-time low over increasing restrictions on foreign currency movements, more Lebanese are turning to digital currencies like bitcoin as a way to shift their money in and out of the country.

“Right now, Lebanese are interested in escaping tight restrictions on cash withdrawals and transfers. They basically want financial freedom,” 29-year old Mahmoud Dgheim, who has traded bitcoin since 2015, told Al Jazeera. “If you want to go around the banking system, bitcoin is a solution.”

Bitcoin – the first and most well-known cryptocurrency – is neither issued nor controlled by any government or financial entity. Rather than go through a bank or another middleman, transactions made in bitcoin are peer-to-peer, anonymous and verified by a centralised global network of computers.

Since its launch over a decade ago, bitcoin has gained legions of converts around the globe who use it to buy everything from hotel bookings, to cars, laptops and furniture.

But it never really took off in Lebanon where central bank restrictions on purchasing bitcoin with Lebanese credit cards, glacial internet speeds and unreliable electricity have acted as serious impediments to adoption.

Risk aversion is another reason Lebanese have steered clear. Bitcoin is famously volatile, whereas the Lebanese pound has long been pegged to the dollar, with which it was used interchangeably.

But faith in the stability of the Lebanese pound has been badly shaken recently.

Lebanese Banks began imposing increasingly restrictive informal capital controls after a popular uprising first swept the country more than four months ago.

Foreign currency withdrawals are now limited to between $50 and just a few hundred dollars a month. Transfers abroad were recently capped at $50,000 a year for so-called “necessary matters”.

Fears that the Lebanese banking system, and indeed the entire heavily indebted Lebanese state, could collapse have led many to invest their cash in assets rather than keep it in the banks. They have bought gold, jewellery, cars, real estate and, increasingly, bitcoin.

Seven Lebanese bitcoin traders said in interviews with Al Jazeera that the volume of their trade had spiked since November, when capital controls were first introduced, with the value of transactions collectively reaching millions of dollars a month.

“It started slow but now, it’s going exponential,” Simon Tadros, a 33-year-old bitcoin trader who is also the chief technology officer of web development firm cnepho.com, told Al Jazeera.

“Before the uprising, bitcoin gave me supplementary income, but now, it’s definitely become the primary,” Omar Debian, a 24-year old Beirut-based bitcoin trader told Al Jazeera.

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