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Young Lebanese driving crypto 'revolution' after banks go bust

September 21, 2021 at 11:56 am

A Lebanese walks past a branch of a bank in Beirut’s Ashrafieh district on August 20, 2021 [ANWAR AMRO/AFP via Getty Images]

On a recent afternoon, Lebanese cryptocurrency trader Mario Awad was sorting out the details of a $2 million deal with a high-profile customer – complete with a hotel stay and the promise of a lively night out.

“I have [security] officers, politicians, media personalities, everyone is buying crypto,” he told the Thomson Reuters Foundation between non-stop phone calls at his plush two-storey flat in the coastal town of Jbeil, north of Beirut.

“Increasingly, it’s also your average person who is trying to get out of the collapsed banks and cut their losses,” he said.

Awad – whose living room wall is adorned with a bitcoin cut-out, a portrait of the Virgin Mary, and a poster of Colombian drug lord Pablo Escobar – sits at the top of a booming cryptocurrency market fuelled by the collapse of Lebanon’s financial system in 2019.

The Lebanese pound, which has been pegged to the US dollar for more than two decades, slid from 1,500 to the dollar to roughly 15,000 on the parallel market by September this year.

Lebanese are forced to withdraw money in pounds at a massive loss or take out US dollar-denominated cheques which are then sold for a fraction of their price – currently about 20 per cent.

READ: Lebanon raises gasoline prices further

A recovery plan proposed by the government to the International Monetary Fund in 2020 estimated the losses in Lebanon’s financial system at about $83 billion.

The bankrupt country’s tech-savvy youth are increasingly turning to cryptocurrency to shield themselves from currency depreciation, get money in and out of the country, and try to make up for the losses they have suffered.

“It’s funny when people say crypto isn’t real because what we found out in Lebanon is that this digital currency is 100 times more real than the dollars we have in the bank,” said crypto enthusiast Ahmad, using a slang term for US dollars stuck in Lebanon’s financial system.

Ahmad – who works in oil and gas in the Arab Gulf and asked to use only his first name – said he had tens of thousands of dollars in savings in the bank when the crisis hit.

The 31-year-old removed the lion’s share in June 2020, losing about 60 per cent of his savings in the process.

Through a friend, he joined one of the dozens of cryptocurrency trading groups on apps like WhatsApp and Telegram where members exchange decentralised digital currencies in person-to-person trades, known as “P2P”.

After getting his money out of the bank in cash, Ahmad handed wads of it over to a crypto trader who sent the corresponding amount of cryptocurrency to Ahmad’s digital wallet, taking a commission somewhere between one and three per cent%.

The majority of transactions taking place in Lebanon’s crypto chatrooms range between a few hundred and a few thousand dollars’ worth of so-called stable coins – such as tether, also called USDT – whose values always hover around $1 per unit.

Lebanon is heading towards complete collapse - Cartoon [Sabaaneh/Middle East Monitor]

Lebanon is heading towards complete collapse – Cartoon [Sabaaneh/Middle East Monitor]

Effectively digital dollars can then be traded for other, more speculative, cryptocurrencies such as bitcoin, the first and most famous cryptocurrency, which was conceived in the wake of the 2008 global financial crisis as an alternative to central-bank issued currencies.

A spokesperson for Lebanon’s central bank did not respond to repeated requests for comment on the size of Lebanon’s cryptocurrency market or the legality of cryptocurrency trading in the country.

Six cryptocurrency traders who spoke to the Thomson Reuters Foundation said millions of dollars’ worth of cryptocurrency was changing hands in Lebanon each day.

Many Lebanese crypto users are sympathetic to the anti-establishment roots of digital currencies: in the same period that the Lebanese pound has been in freefall, cryptocurrencies have rallied to all-time highs.

The country’s economic crisis, likely among the world’s worst since the 1850s, according to a June World Bank report, is widely blamed on systemic corruption and decades of mismanagement by a closely-knit ruling elite.

“The developers of bitcoin were definitely thinking about the exact things that happened here … about corrupt institutions with bad monetary and fiscal policies leading to the debasement of currencies,” said cryptocurrency user Jad.

The 34-year-old music producer based in Beirut noted he bought cryptocurrency with most of his savings.

READ: Lebanon to sign deal for central bank audit

“Personally, I’m in it for the revolution… I can be the custodian of my money and have it in my pocket on my phone,” he added.

Ali Noureddine, a Lebanese economist at independent news platform Megaphone, said many entering the cryptocurrency trade in Lebanon were driven by ideological opposition to “a banking system that has no-one trusts to store their money in.”

But he said cryptocurrency had not yet shown itself to be a long-term alternative to state-backed money in Lebanon because most businesses do not accept it and its volatility does not yet make it a reliable store of value – one of the main functions of a currency.

“It’s still largely a commodity to speculate on for those with a bit of an adventurous streak who think they can make a profit in six months or so,” he said.

Legal grey area

And while cryptocurrency is growing increasingly popular among Lebanese, it inhabits a legal grey area.

“It’s a regulatory desert,” said a Lebanese executive at a leading global cryptocurrency exchange who goes by the name CryptoLira on Twitter but asked to remain anonymous.

“For many, that’s seen as good because we’re not living in a country where regulations and politicians give us hope – quite the opposite. But it does harm widespread adoption [of cryptocurrency],” he said.

As well as trading cryptocurrencies, many Lebanese are now “mining” them.

The energy-intensive process involves creating cryptocurrency by solving complex sums used to record and verify blocks of digital currency transactions.

In a country beset by rolling power cuts, crypto miners can operate thanks to a heavy fuel subsidy that makes Lebanon’s electricity some of the cheapest in the world and, until recently, kept it affordable to run private diesel generators whenever the power went off.

READ: Lebanon launches cash subsidy cards for families

“There are people who bought enough diesel to sustain them for months at very low, subsidized rates,” a local cryptocurrency miner said, speaking on condition of anonymity.

As they watch the country’s unemployment rate soar, Lebanese miners say it’s worth going to any lengths to obtain cryptocurrency because it provides an easy and consistent source of income.

“Even if you’re making $10 a day with a normal computer, that’s now several times the minimum wage,” the miner said.

And those at the forefront of Lebanon’s crypto boom say none of that money will ever see the inside of a Lebanese bank.

“After what we’ve been through, I’m never putting one cent back in a Lebanese bank,” Jad said.

“You need an alternative – and opening a crypto account is easy-peasy.”

The views expressed in this article belong to the author and do not necessarily reflect the editorial policy of Middle East Monitor.