Can cryptocurrency help solve Lebanon's banking crisis

Abstract

Since the 2019 financial collapse, Lebanon has experienced one of the most severe economic contractions in modern history, characterized by a 90% devaluation of the Lebanese pound and the systemic failure of the commercial banking sector. This research investigates the emergence of cryptocurrencies-specifically Bitcoin and Ethereum-as a parallel monetary system in response to draconian capital controls and the erosion of institutional trust. Utilizing a qualitative analytical framework, the study evaluates whether digital assets can effectively serve as a substitute for traditional banking, a reliable store of value against hyperinflation, and a mechanism for cross-border remittances. The findings indicate that while decentralized finance (DeFi) provides a critical "lifeline" for individuals and small businesses to bypass local banking restrictions and facilitate international transfers, it remains a partial solution. The study identifies four primary barriers to total integration: high price volatility, regulatory ambiguity, technological barriers to entry, and the inability of digital assets to provide essential banking functions such as credit provision and formal financial infrastructure. The research concludes that while cryptocurrency offers a necessary alternative for financial inclusion during a state of collapse, it cannot replace the structural reforms required to restore Lebanon's fiscal integrity. Ultimately, digital assets function as a proactive response to institutional failure rather than a comprehensive cure for systemic economic crises.