Distrust in state-backed currency sows crypto adoption in Latin America

The crypto establishment is making headway in some corners of Latin America, where adoption would appear poised to accelerate.

Why it matters: The U.S. is the financial capital of the world. But there is a future in which crypto adoptees in Brazil and Argentina, for example, drive the utility of digital assets farther than consumers in developed nations have.

  • An exchange with a billion-dollar valuation is expanding and major financial institutions reportedly rolling out new wares, saying folks there are primed to embrace digital assets and platforms.

Driving the news: This week heavyweight financial firms BTG Pactual and XP Inc. rolled out their own crypto platforms, called Mynt and Xtage, respectively.

  • Mastercard and Binance in early August launched a prepaid rewards card in Argentina to help drive spending in crypto, and the payments company in June said it would “secure” e-commerce giant Mercado Libre’s crypto ecosystem in Brazil.
  • Mexico-based crypto exchange Bitso in July reached 1 million users after only a year in service in the country. Plus, Spanish banking giant Banco Santander is reportedly wading into crypto products and services.

The arrival of the crypto establishment in pockets of Latin America shows the growing market there, which represented roughly 9% of all crypto transactions tracked by research firm Chainalysis between July 2020 and June 2021 (the most recent data available was published Oct. 2021).

Be smart: Crypto adoption in emerging nations is playing out very differently than in developed nations and is being seeded by retail customers rather than the big and the well-heeled.

  • “In emerging markets, many turn to cryptocurrency to preserve their savings in the face of currency devaluation, send and receive remittances, and carry out business transactions,” Chainalysis’ 2021 report said.
  • “In North America, Western Europe, and Eastern Asia, by contrast, adoption over the last year has been driven largely by institutional investment.”

The big picture: In regions where a trifecta of factors — high inflation, political instability and traditional banking services being out of reach — push folks to find alternatives to the state-backed currency, crypto sings.

  • Kenya, Nigeria, Vietnam and Venezuela dominate in web traffic for peer-to-peer crypto platforms, which serve as on-ramps to the crypto ecosystem in places where people don’t have access to centralized exchanges.

Case in point: The unstable Argentinian peso has given rise to black-market currency exchanges called cuevas, highlighted in yesterday’s newsletter.

  • Folks hitting up these illegal currency exchanges have embraced crypto as a safer and cheaper way to move large quantities of cash across borders, averting government scrutiny.
  • In effect, crypto, even used indirectly, is helping people on the ground save — bolstering the industry’s argument that digital assets could enable greater financial inclusion.

The other side: There’s already concern, however, that some crypto-enabled humanitarian organizations and private companies just doing business are doing more harm than good, and there’s a term for them: crypto colonialists.

Another roadblock: Crypto can only go as far as broadband internet can go, according to Brazil’s central bank.

  • “The main challenges for financial inclusion in Brazil stem from two sources: inadequate broadband coverage and financial illiteracy,” Fabio Araujo, project lead of Digital Brazilian Real Initiative, said in an April report about the country’s CBDC effort.

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