Sri Lanka and cryptocurrency
Cryptocurrency adoption has been picking up in surprising places, and Sri Lanka is one of the latest countries to feel the pull. Despite facing economic challenges, this island nation is witnessing a quiet but steady interest in crypto.
This is especially true among young adults looking for new opportunities to escape economic struggles and inflation. The number of crypto users in Sri Lanka is expected to amount to over 590,000 users by 2025.
With more Sri Lankans joining global crypto communities and even some small businesses accepting Bitcoin, the movement towards digital assets seems to be gaining a foothold here.
But what’s driving this new wave of interest? For many, it’s the hope that crypto could offer an alternative to a struggling local currency and provide access to a broader financial industry outside traditional banking.
This curiosity is also fueled by stories of people in countries with similar economic hurdles, like Venezuela and Argentina, finding stability in crypto. While there are challenges ahead—like regulations and lack of resources—crypto adoption in Sri Lanka is worth watching.
Will it become a new hub in the global crypto scene? Or will barriers slow the progress? Find out what this could mean for the future of finance in Sri Lanka.
“Inflation in Sri Lanka hit a record high of over 70% in 2022.”
Current Economic Situation in Sri Lanka
Source: United States Institute of Peace
Sri Lanka’s economy has been turbulent in recent years. It has been characterized by a severe currency depreciation, soaring inflation, and escalating debt.
This situation intensified after the COVID-19 pandemic disrupted tourism, one of the country's main income sources. Things got worse in 2022 when Sri Lanka defaulted on its debt for the first time in its history.
Inflation spiked to an all-time high of over 70%, and essential imports, including fuel and food, faced critical shortages. The Sri Lankan rupee lost nearly 80% of its value against the dollar. This prompted a national crisis and a wave of protests across the country.
According to a World Bank report, over 25% of Sri Lanka’s population was pushed below the poverty line in 2022. Unemployment rates among young adults also hit unprecedented levels. These economic pressures have compelled citizens to look for alternative ways to protect their wealth and access financial opportunities. One of the identified alternatives is crypto.
The Sri Lankan government has been attempting to stabilize the economy through austerity measures and IMF-backed reforms. In March 2023, the International Monetary Fund (IMF) approved a $3 billion bailout package aimed at helping Sri Lanka restructure its debt and strengthen its economic resilience.
However, despite these measures, economic recovery remains fragile, and everyday citizens continue to face high costs and limited economic options.
The nation's young population, who are heavily impacted by unemployment and economic stagnation, are increasingly turning to digital assets. Crypto represents a way to bypass the limitations of the local banking system and access a global financial network.
“Overall population in Sri Lanka, was estimated to be over 22 million as of 2023 with a projected increase of 8% to over 24 million by 2050.”
Current State of Crypto Adoption in Sri Lanka
Source: PayBito
Crypto adoption in Sri Lanka is still in its early stages, but interest has been growing steadily. This is driven largely by young adults and small businesses seeking alternatives to the struggling local economy.
Chainalysis in 2023 ranked Sri Lanka as one of the emerging crypto markets in South Asia. The report noted a significant uptick in peer-to-peer (P2P) crypto transactions.
Community-driven initiatives are also fueling crypto curiosity in Sri Lanka. For instance, the Sri Lankan Blockchain & Cryptocurrency Association (SLBCA) has organized numerous educational workshops and meetups in Colombo and other major cities. This is aimed at increasing exposure to crypto, and providing a safe entry point for new users.
The Sri Lankan government, while cautious, has also begun to acknowledge the rise of cryptocurrency in the country. The Central Bank of Sri Lanka issued a notice reiterating the risks associated with crypto investments, emphasizing the lack of regulation and consumer protections.
However, the release also hinted at ongoing discussions to develop a balanced regulatory framework for digital assets. Although no formal crypto regulations exist yet, the Central Bank has made clear that it is closely monitoring global trends in digital currency policy, especially in countries with similar economic challenges.
“The IMF approved a $3 billion aid package for Sri Lanka in March 2023.”
Factors Driving Crypto Adoption in Sri Lanka
Several key factors are fueling crypto adoption in Sri Lanka. These include:
- Economic Instability: High inflation and a devalued rupee, has prompted citizens to look for alternative ways, such as crypto, to protect their assets. Cryptocurrencies seem to offer a potential safeguard against local currency decline.
- Global Financial Opportunities: For many young Sri Lankans, crypto represents not only a hedge against inflation but also a gateway to global financial opportunities otherwise limited by traditional banking barriers.
- Regional Influence: Sri Lanka’s tech-savvy youth are increasingly influenced by stories from countries like Venezuela and Argentina, where crypto is being used to navigate economic challenges.
- Community-led Educational Initiatives: Workshops organized by the Sri Lankan Blockchain & Cryptocurrency Association (SLBCA), have also played a role in increasing crypto awareness and knowledge. This has helped more people enter the crypto market with greater confidence.
Cryptocurrency Usage in Various Sectors
Source: Mobility Alliance
Cryptocurrency usage in Sri Lanka, though still developing, is making inroads into several sectors. In retail, a handful of tech-forward cafes and small businesses in Colombo have begun accepting Bitcoin as a payment option.
This is aimed at catering to young consumers and international customers who prefer digital transactions. In addition, some freelancers and digital entrepreneurs are using cryptocurrencies to access global markets.
There’s also rising interest in crypto among Sri Lanka’s remittance-dependent communities. As overseas Sri Lankans look for cost-effective ways to send funds home, some are exploring stablecoins as an alternative to traditional remittance channels.
“Chainalysis ranked Sri Lanka as an emerging crypto market in South Asia in 2023.”
Cryptocurrency Regulation in Sri Lanka
Cryptocurrency regulation in Sri Lanka remains a work in progress. The Central Bank of Sri Lanka has issued several advisories warning citizens about the risks of unregulated digital assets. The bank has cited concerns over fraud and the lack of consumer protections.
While no formal regulations currently exist, the government has indicated that it is closely monitoring global trends in crypto policy and exploring a potential framework to address digital currencies in the future.
Challenges Facing Crypto Adoption in Sri Lanka
Source: Analytics Insight
Crypto adoption in Sri Lanka faces several challenges such as:
- Lack of Clear Regulation: This leaves users vulnerable to risks like fraud and market volatility.
- Limited Access to Technology and Financial Literacy Gaps: Many Sri Lankans struggle to fully understand and utilize cryptocurrencies safely.
- High Transaction Fees: The high cost of carrying out transactions on global platforms, also discourages widespread adoption. Most Sri Lankans cannot afford them.
- Unstable Internet: Poor internet infrastructure in some areas of the country, further complicates access.
“Crypto adoption in emerging markets like Sri Lanka is expected to grow by 32% annually through 2025, per Statista.”
The Potential for Cryptocurrency in Sri Lanka
Despite current challenges, cryptocurrency holds significant potential in Sri Lanka. With its young, tech-savvy population and ongoing economic struggles, crypto offers an alternative for financial stability and access to global markets.
Digital assets could help Sri Lankans hedge against currency devaluation. It could support remittances with lower fees, and create new economic opportunities, especially for freelancers and small businesses.
If regulations evolve to support innovation while ensuring safety, cryptocurrency could play a transformative role in empowering citizens and expanding financial inclusion across the country.
Conclusion
While cryptocurrency adoption in Sri Lanka is still in its early stages, the growing interest among young adults and small businesses shows its potential to offer a financial lifeline amid the country's ongoing economic struggles.
Despite challenges like the lack of regulation, limited access to technology, and concerns over fraud, the movement toward digital assets is gaining momentum.
As the government continues to explore regulatory frameworks and the community-led educational initiatives expand, cryptocurrency could play a pivotal role in providing financial stability, and fostering new economic opportunities in Sri Lanka.
