Distrust of state-backed currency fuels crypto adoption in Latin America

The crypto establishment is making headway in some corners of Latin America, where adoption appears to be accelerating.

Why it matters: The United States is the financial capital of the world. But there is a future where crypto-adopters in Brazil and Argentina, for example, push the utility of digital assets further than consumers in developed countries have.

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

Driving the news: This week, financial heavyweights 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 crypto spending, and the payments company said in June it would “secure” e-commerce giant Mercado Libre’s crypto ecosystem in Brazil.
• The Mexico-based crypto exchange Bitso reached 1 million users in July after only one year of 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 about 9% of all crypto transactions tracked by research firm Chainalysis between July 2020 and June 2021 (the latest available data was published in October 2021).

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

• “In emerging markets, many are turning to cryptocurrency to preserve their savings in the face of currency devaluation, send and receive remittances, and conduct business transactions,” Chainalysis’ 2021 report said.
• “In North America, Western Europe and East Asia, on the other hand, adoption over the past year has been largely driven by institutional investment.”

The big picture: In regions where a trifecta of factors – high inflation, political instability and traditional banking services are out of reach – people are pushing to find alternatives to the state-backed currency, crypto singing.

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

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

• People who set up these illegal currency exchanges have embraced crypto as a safer and cheaper way to move large amounts of cash across national borders, avoiding government scrutiny.
• In fact, crypto, even indirectly used, helps people on the ground save – strengthens the industry’s argument that digital assets can enable greater financial inclusion.

The other side: However, there are already concerns that some crypto-enabled humanitarian organizations and private companies just doing business are doing more harm than good, and there is a term for them: cryptocolonialists.

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

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