Europe

Jittery Spaniards Seek Safety in Bitcoins


Piggy banks on sale in Valencia, Spain

Photograph by Miguel Sotomayor

Piggy banks on sale in Valencia, Spain

Since Sunday, a trio of Bitcoin apps have soared up Spain’s download charts, coinciding with news that cash-strapped Cyprus was planning to raid domestic savings accounts to pay off a $13 billion bailout tab. Fearing contagion on the other end of the Mediterranean, some Spaniards are apparently looking for cover in an experimental digital currency.

“This is an entirely predictable and rational outcome for what’s happening in Cyprus,” says Nick Colas, chief market strategist at ConvergEx Group. “If you want to get a good sense of the stress European savers are feeling, just watch Bitcoin prices.”

The value of the virtual currency has soared nearly 15 percent in the last two days, according to the most-recent pricing data. “One hundred percent of that is due to Cyprus,” says Colas. “It means the Europeans are getting involved.”

That Spaniards would consider converting a portion of their dwindling savings into a peer-to-peer currency vulnerable to wild price fluctuations and the odd thieving Trojan speaks volumes about banking confidence in some parts of Europe. As German economist Peter Bofinger warned in an interview with Spiegel Online: “European citizens must now fear for their money.” The same apps download data, however, showed that Italians aren’t ready to abandon commercial banking, remarkable as many Italians still recall that black day in 1992 when they woke up to a levy on their savings accounts to prop up the nation’s teetering finances.

Meanwhile, for Russian millionaires who have also been burned by the Cypriot tax levy, Bitcoin is far from a safe haven shelter. “Bitcoin is good if you want to make a deposit of between $1,000 and $10,000. But the liquidity is just not there in the system for multimillion dollar transactions,” Colas points out.

Warner writes about innovation for Bloomberg Businessweek. Follow him on Twitter @bernhardwarner.

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