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The price of bitcoin skyrocketed in Iran? The opposite may be true

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At the official exchange rate, it did push the price of bitcoin past its all-time high. But based on real exchange rates, real bitcoin prices in Iran may be lower than the current global average.

Iran's bitcoin boom? The opposite may be true.
Source: LongHash by James Gong

A us drone strike that killed a major general in Iran's revolutionary guard has brought global attention to the region. Qassim Soleimani, who was killed by the United States, was the commander of the Quds Force, an elite unit of the islamic revolutionary guards corps, responsible for military operations in the Middle East. Not only did the crisis cause global oil prices to soar, but the price of bitcoin also rebounded from $6,850.

On LocalBitcoins, a seller based in Iran (selling Iranian riyals) quoted a price of more than $24,000 for a single bitcoin, according to numerous media reports. The price is even higher than bitcoin's previous global high of around $20,000 in December 2017. As a result, the price of bitcoin in Iran has skyrocketed due to the Iran incident, and people are flocking to buy bitcoin. Many people even suggest to go to Iran to carry bricks. Some commentators have also suggested that bitcoin has gained huge popularity in Iran because of its characteristics, which many consider a safe haven asset.

LocalBitcoins, a helsinki-based Finnish peer-to-peer bitcoin exchange, offers a service that makes it easy to find buyers and sellers who want to trade bitcoins, allowing for person-to-person bitcoin transactions with others. Users post ads on the site explaining the exchange rate for bitcoin and how to pay for the service, which facilitates over-the-counter transactions with local currencies.

But it would seem imprudent to draw such a conclusion from a single tally, since every country is so complex that it is hard to see the whole picture from a single figure. So whether that's the case, whether bitcoin is getting a lot of attention in Iran because of this, let's see if the data supports that conclusion.

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The Iranian rial (IRR) is the currency name of Iran. The real has lost about 60 per cent of its value since late 2011 and early 2012, when sanctions against Iran were announced by the us and Europe. By October 10, 2012, the rial had lost more than 40 percent of its value in a week. As the sanctions have continued, so has the real. However, in April 2018, as US President trump announced the date of withdrawing from the Iran nuclear deal (JCPOA) in May, further rapid depreciation of the rial, especially the restrictions on Iran's oil exports, directly led to the currency crisis of the rial.

Iranian policy makers have adopted a number of parallel exchange-rate policies in response to pressure from a depreciating currency and the rapidly rising cost of imported goods. It kept the official exchange rate strictly at 42,000 riyals to the dollar. Based on the official exchange rate, then the previous listing price on LocalBitcoins, namely 1 billion riyals for one bitcoin, would be about $24,000 at the official exchange rate of 1 billion riyals. That said, at the official exchange rate, it did push the price of bitcoin past its all-time high.
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But given that Iran's "official exchange rate" does not represent the actual situation, the Iranian government also has an exchange rate, the NIMA exchange rate, named after the online currency system established by the central bank of Iran (CBI) in April 2018. The system can be used to buy foreign exchange on exchanges and Banks, and exporters are obliged to repatriate their export earnings. According to media reports, in recent months, NIMA rate of about 110000 IRR/USD (https://www.bourseandbazaar.com/articles/2019/8/21/iran-delays-currency-reform-demanded-by-private-sector).

In addition, the Iranian rial has a different exchange rate in the so-called "free market", at 125,000 IRR/USD. The exchange rate may be seen as closer to the real exchange rate accepted by the market, with a lower exchange rate making the cost of living more affordable for ordinary iranians. (https://www.intellinews.com/rouhani-says-iran-s-resistance-budget-has-least-possible-dependence-on-oil-173035/) in addition, according to the different reports of the Internet, as well as media believe the real exchange rate has actually in IRR/between IRR/USD 146000 to USD 130000.

At the real exchange rate of 125,000 riyals to the dollar, that's about $8,000 for a billion riyals, which means the actual price on LocalBitcoins is about $8,000 to a bitcoin, which doesn't seem to be much higher than the global average. And if we take into account the fact that this crisis event may lead to further depreciation of the riyal, or if we directly use the exchange rate of 146,000 riyals, the actual price of bitcoin in Iran may still be lower than the current global average.

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In addition, let's look at the trading volume of LocalBitcoins in Iran. As can be seen from the above chart, when the riyal entered the rapid depreciation channel in the second half of 2017, the otc trading of bitcoin in Iran did start to heat up rapidly. Indeed, quite a few people started to try to convert their riyals into bitcoin, but it may also be converted into dollars by means of bitcoin.

According to its report, LocalBitcons stopped serving Iran after May 2019, perhaps because of U.S. sanctions or other unnamed reasons, but that doesn't seem to have stopped Iran from trading bitcoin over the counter. At the time, traders based in Iran were banned from using Localbitcoins inside the country, and the Iranian section of the site showed a text message saying the exchange was "currently unavailable". But from the chart, instead, trading volume has reached a relative high. But starting in November 2019, as Iran cut off the country's Internet, that led to a rapid decline in transactions.

On November 15, 2019, the Iranian government decided to triple the price of fuel, sparking nationwide riots. And on Nov. 16, Iran's top security agency decided to shut down the Internet after the government said saboteurs, insurgents and those behind them were using various Internet services to organize their activities and sabotage across the country.

On November 18, Mohammad Javad Azari Jahromi, Iran's minister of information and communications technology, said that by cutting off the Internet, many Iranian Internet service providers had for the first time made widespread use of the country's national information network (NIN), known as the "homegrown Internet". The successful switch of many online services to Iran's national information network did not stop Internet banking and other routine activities in the country.

Regardless of the impact of other Internet activities, it is clear from data from LocalBitcoins that this cut-off has caused a virtual disruption to otc bitcoin transactions in Iran, and may even have had an impact on the transmission of bitcoin.

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Let's take another look at the search data brought to us by Google Trends. The correlation between the search popularity of the keyword "Bitcoin" and the trading volume of LocalBitcoins in Iran over the past five years is clearly consistent. But if we look at the data over a seven-day period, there doesn't seem to have been any particular change, and the recent crisis doesn't seem to have generated any additional interest in bitcoin among iranians.

To sum up, we can find that the phenomenon described by many media before that the price of bitcoin has skyrocketed due to crisis events in Iran, which seems to be inconsistent with the actual situation. Based on Iran's real exchange rate, the price of bitcoin does not appear to be far from the global average, or even below it. According to the current trading volume of LocalBitcoins in Iran, it is almost the lowest in history, close to no transaction, so the few transactions are not representative. Even from the Google Trends data, bitcoin doesn't seem to be generating any extra enthusiasm. So there is no reason to think that bitcoin is gaining popularity in Iran because of this event and that people are buying it.

But the global bitcoin price did rebound, and it coincided with the Iranian crisis, so we can't rule out that there is some correlation, and how things will develop in the future, and whether there is more correlation between bitcoin and global crisis events, still depends on time to prove.

Source:https://www.longhash.com/cn/news/3237