August 14, 2022

The role of cryptocurrency in Latin America

The role of cryptocurrency in Latin America

Latin America is a region of developing countries. It accounts for only 5-9% of all crypto transactions in the world, but cryptocurrencies mean more to locals than to many Western users.

In the region, cryptocurrencies help not only simplepeople, but also businesses to protect their savings from hyperinflation, and migrants are given access to faster and cheaper money transfers than traditional payment services.

All of this creates the potential for truly massive adoption of cryptocurrencies in this region. We figured out what are the features of the Latin American crypto sector and what are the prospects for its development.

Volume of the crypto market in Latin America

First, let's consider the volume of the crypto market inLatin America, based on last year's Geography of Cryptocurrency Report by research firm Chainalysis. According to him:

  • Between 2017 and 2020, 7% of allcrypto transactions accounted for Latin American countries (for comparison: North America accounted for 15%, while Asian countries accounted for 31%). On average, this figure ranges from 5% to 9%.
  • $ 49 billion - this is the total volume of crypto transactionsin Latin America between July 2019 and June 2020. Of these, $ 24 billion came to the region, $ 25 billion was withdrawn from it. According to this indicator, Latin America is ahead only of Africa and the Middle East.
  • South America ranked second in terms of growth in volume and number of transactions in 2019-2020.
  • A significant part of crypto transactions areretail transactions - according to this indicator, the region took the second place. At the same time, the average amount of such transactions exceeds $ 10,000 in cryptocurrency - we are talking about large and commercial transfers.
  • The first place in crypto transactions in the region belongs to Brazil, followed by Venezuela, Argentina, Mexico, Colombia and Chile with almost three times lagging behind.

The role of cryptocurrency in Latin America

The volume of crypto transactions by country and currency, according to Chainalysis.

  • In 2020, Venezuela and Colombia entered the top 10countries in the Chainalysis Cryptocurrency Adoption Index. This ranking shows the countries with the highest level of cryptocurrency distribution among locals. Venezuela and Colombia ranked third and ninth, respectively. It is noteworthy that Ukraine is in first place, and Russia is in second.
  • The share of Latin America in Bitcoin mining is only a fraction of a percent.

According to the findings of Chainalysis, the popularity ofcryptocurrencies in Latin America are due to factors such as the lack of access to banking services for a wide part of the population, the popularity of cryptocurrencies in international transfers, as well as the devaluation of local fiat currencies and, as a result, hyperinflation.

Features of the crypto market in Latin America

Let's highlight the main features of the Latin American crypto market.

Using bitcoin to protect against hyperinflation and during crises. Countries like Argentina, Uruguay, Colombia,Chile and Venezuela have been struggling for decades with hyperinflation - a situation when the national currency depreciates by tens or hundreds of percent per year. For example, last year inflation in Argentina was 42%, and in 2019 it was 53%. In Venezuela, inflation last year was 6,500%, and in 2018 it reached 1,300,000%.

Against this background, even high volatilityCryptocurrencies are no longer so frightening - when the value of bitcoin falls several times, the holder of the coin will lose much less than when investing in a Venezuelan bolivar. For residents of countries with hyperinflation, cryptocurrencies and, above all, bitcoin and stablecoins, have become a real salvation - they allow not only preserving, but even increasing their savings.

Characteristically, in cryptocurrencies, inflation risks are hedged not only by ordinary people, but also by large investors - they account for about 80% of the total volume of monthly crypto transactions.

The popularity of cryptocurrencies for international transfers. The region is one of the leadingthe number of remittances in the world. According to the World Bank, the Latin American countries' remittance market is about $ 96 billion a year, or 1.7% of their total GDP. The volume of remittances from the United States to Mexico alone last year amounted to $ 40 billion (the United States is the largest source of remittances to Latin America in fiat currency). However, traditional payment companies, such as, for example, Western Union, impose high commissions on their services, as well as have limits and long terms for receiving a transfer.

Every year cryptocurrencies are becoming more and morepopular tool for international transfers. This is not surprising, given the advantages of digital currencies - high transfer speed and lack of high fees. As a result, 90% of all cryptocurrencies come to Latin America from other countries.

For transfers, Hispanics are mainlyuse stablecoins such as DAI and USDC. Most often, cryptocurrencies are transferred to residents of Mexico and Venezuela. These countries rank third in terms of transfers to LocalBitcoins and Paxful, two of the world's most popular P2P platforms. Local P2P platforms such as Valiu, Reserve or La PlataForma are also in great demand.

Cryptocurrency transfers are used not onlylabor migrants, but also local businesses. According to Chainalysis, East Asia is one of the main regions where cryptocurrencies are transferred from Latin America. Many of these payments are actually commercial transactions between Asian exporters and Latin American companies buying goods for retail sale. Local firms use bitcoin for settlements, because transactions with it are faster and easier than bank payments, which also need to be accompanied by supporting documents.

The role of cryptocurrency in Latin America

The number and volume of crypto transfers sent from Latin America to other regions, according to Chainalysis.

Improving people's access to financial services. About half of Latin America's population does nothave bank accounts, as they do not have a stable income, sufficient savings, and in some cases even access to a bank branch. Moreover, over 55% of adults own smartphones. Thus, through cryptocurrencies, they gain access to a new, decentralized financial system.

Traders prefer foreign exchanges. Most Latin American crypto tradersprefer to work on major international exchanges such as Binance, Huobi, OKEx, Coinbase and Bitstamp. Many of them use fiat to buy BTC or USDT on local crypto services or P2P platforms, and then transfer them to larger exchanges, where they get access to more trading pairs and liquidity. Also popular in the region are Bitso registered in Europe and Argentinean Ripio.

High level of cryptocrime. 2.4% of all crypto transactions in the region are criminal operations. Last year, the world average, this figure was 0.34%. Over 60% of all criminal transactions are scam projects, the largest of which are F2TradingCorp, FXTradingCorp and WishMoney.

However, now the share of the use of cryptocurrencies by criminals is sharply reduced. We have previously discussed why criminals dislike cryptocurrencies and prefer cash and bank transfers.

The role of cryptocurrency in Latin America

10 largest South American scam projects, according to Chainalysis.

Regulation of cryptocurrencies

Regulation of cryptocurrencies in Latin Americavaries greatly from country to country - there is no uniform approach across the region. Many jurisdictions (for example, Colombia, Chile, Peru, Uruguay) still do not have specific legislation on digital currencies.

In Bolivia and Ecuador, the use of cryptocurrencies andthe operation of crypto-exchanges is prohibited, and violators face prison terms. The Ecuadorian authorities only allow the use of the SDE government token, a form of electronic money pegged to the US dollar (the country's official currency). SDE users can pay for a range of services and make transfers.

In other countries of the region, the crypto sector is legal. For example, in Mexico, Argentina, Brazil, Venezuela and Chile, cryptocurrencies are freely accepted as payment by retail retailers.

Cryptocurrencies in the region are mainly consideredas assets and are subject to capital gains tax. The exception is Argentina, in which cryptocurrencies are defined by different departments as a commodity or an analogue of securities. The authorities in Brazil, Argentina and Chile also levy income tax on profits from crypto operations.

Crypto exchanges are not regulated everywhere.So, in 2018, Mexico became the first country in the region to pass a law on regulating crypto companies, obliging them to register and conduct KYC / AML checks on users. Later, similar laws were passed by the authorities of Brazil and Argentina. In these countries, marketplaces are required to provide regulators with user and transaction data.

In Brazil and Colombia, regulatory sandboxes for cryptocurrencies were launched in 2020 and 2021 - these are special legal regimes that allow crypto startups to legally engage in this activity.

Argentina

Argentina's economic problems (from hugedebt obligations to high inflation), also aggravated by the COVID-19 pandemic, a ban on the purchase of dollar amounts over $ 200 and another default, motivate residents of the country to use cryptocurrencies more often.

In 2020, the country's crypto market experienced a realboom: the number of users of the most popular crypto-exchanges Ripio and Bitso has grown several times over the year and exceeded 1 million people. At the same time, the trading volume on P2P platforms LocalBitcoins and Paxful also increased many times over.

The Latin American version appeared in the country as followscalled "kimchi premium" - the difference between the price of military-technical cooperation on national and global exchanges. So, at the end of May, the cost of bitcoin on local platforms reached $ 62,000 (5.9 million Argentine pesos) against $ 35,900 on international exchanges (3.4 million pesos).

Now the country is shaping up amazinglyfavorable conditions for mining. The government subsidizes electricity for residential buildings. Thanks to this, Bitcoin mining is very profitable in Argentina - the production of the first cryptocurrency is about half the price of mining in other countries of the region. Taking advantage of the situation, the Canadian firm Bitfarms plans to open the country's largest mining farm in Latin America.

Regarding regulation, the Argentine authoritiesrequire local crypto exchanges to report monthly information about user transactions, as well as report income and account balances. In the fall of 2020, two coalitions of deputies submitted projects to regulate cryptocurrencies to the country's parliament, but they were not adopted.

Brazil

Unlike Venezuela and Argentina, whose economieshave suffered from constant crises for many years, in Brazil before the COVID-19 pandemic, the popularity of cryptocurrencies was much lower. Many residents associated digital currencies with scams and pyramids.

But over the past year, more and more people have becomeconsider cryptocurrencies (and above all bitcoin) as a long-term option for savings or as a tool for international transfers. As a result, Brazil became one of the countries with the largest number of cryptocurrency investors, in proportion to its population.

The country has also experienced a boom over the past 2 years.institutional and venture capital investments in the local crypto sector. For example, at the beginning of the year, the country's largest cryptocurrency exchange, Mercado Bitcoin, raised $ 38 million in funding and announced expansion to Chile, Mexico and Argentina. Traditional financial companies are also showing interest in the storage of cryptocurrencies and the use of stablecoins. For example, banks Uzzo, Zro Bank, Alterbank, Bancryp, Nexo began to offer crypto services.

There are now about 60 crypto exchanges in Brazil,of which Bitrawr, the country's leading exchange, has currently opened 1.5 million accounts. Sites must report to the regulator on user actions, and residents of the country are required to report their crypto transactions. Brazil, along with Canada, is one of only two countries that allow Bitcoin ETFs.

The central bank of Brazil spoke several times about the possible launch of digital real, and at the end of May even published the principles of the future CBDC. But the regulator has no concrete plans in this regard yet.

Authorities are also looking into practical useblockchain - several government agencies, for example, customs and notary offices, are already using the technology to certify documents, and large companies are introducing blockchain to certify production.

Venezuela

Venezuela stands out on the list of Latin American countries because of its experiment with the digital bolivar, the national cryptocurrency PETRO.

Fiat bolivar practically depreciated - currencymanaged to lose millions of percent a year. In the 70s and 80s, Venezuela was one of the richest countries in Latin America. But due to the socialist economic reforms of the country's former President Hugo Chavez (as well as their continuation by the current President Nicholas Maduro), the country's economy was thrown back to the level of the middle of the last century.

Therefore, despite the largest production volumesoil, the country lacks water, food, electricity, gasoline and medicines. Everyone who could have left Venezuela a long time ago or work abroad - out of 30 million inhabitants of the country, 5 million have emigrated. And so far there are no signs that the situation will improve in the near future.

Under these conditions, cryptoassets took on an importantrole in the Venezuelan economy - many residents use them for international transfers and protect savings from hyperinflation. As a result, the country has achieved one of the highest rates of cryptocurrency usage in the world.

The Venezuelan authorities launched PETRO in 2018,claiming that the coin was backed by oil, gold and diamonds, but no evidence was provided. PETRO is based on the Ethereum blockchain, so it is actually a token.

PETRO was launched with several goals:the fight against currency devaluation and the crisis, as well as the possibility of bypassing the sanctions imposed on the country by the United States. The authorities hoped that the token would be in demand on the international market. But this did not happen. Even within the country, PETRO is not popular - the local population prefers other cryptocurrencies. Therefore, Venezuela ranks third in terms of the number of users of the LocalBitcoins P2P exchange.

The government sets the course for PETRO, andit pays civil servants' salaries and pensions, pays for government contracts. PETRO can also pay off large retailers and even street vendors, but this is not profitable for them - the country's Central Bank exchanges the token for fiat currency at a greatly undervalued rate.

After the launch of PETRO, the Maduro regime allowedcountry, the operation of seven cryptocurrency exchanges - their goal was to facilitate the exchange of PETRO on the international market. You can also buy other cryptocurrencies on these sites.

According to Chainalysis, over 75% of crypto transactionson them exceed $ 1,000. And given that the average income of an ordinary Venezuelan is $ 0.72 per day, then, most likely, the majority of the country's crypto users are people close to the Maduro regime. For them, cryptocurrency is an opportunity to avoid sanctions (most high-ranking Venezuelans cannot open bank accounts in other countries) and withdraw capital from the country.

Latin America is the ideal region for mass adoption of cryptocurrencies

The Latin American crypto market may seem too small - there are no breakthrough projects in the region that work around the world and set the direction for the development of the sector.

But this is where cryptocurrencies can become muchmore popular than in the West or East. Latin Americans perceive them as a serious and viable alternative to traditional currencies. With appropriate regulation, the region can become one of the world leaders in the use and integration of cryptoassets into the real economy.

Where is it more profitable to buy cryptocurrency? TOP-5 exchanges

For a safe and convenient purchase of cryptocurrencies with a minimum commission, we have prepared a rating of the most reliable and popular cryptocurrency exchanges that support deposit and withdrawal of funds in rubles, hryvnias, dollars and euros.

Site reliability is primarily determined bytrading volume and number of users. By all key metrics, Binance is the largest cryptocurrency exchange in the world. Binance is also the most popular cryptocurrency exchange in Russia and the CIS, since it has the largest turnover of funds and supports transfers in rubles from bank cards Visa / MasterCard and payment systems QIWI, Advcash, Payeer.

Especially for beginners, we have prepared a detailed guide: How to buy bitcoin on a crypto exchange for rubles?

Rating of cryptocurrency exchanges:

# Exchange: Website: Rating:
1 Binance (Editor's Choice) https://binance.com 9.7
2 Bybit https://bybit.com 7.5
3 OKEx https://okex.com 7.1
4 Exmo https://exmo.me 6.9
5 Huobi https://huobi.com 6.5

The criteria by which the rating is set in our rating of crypto-exchanges:

  • Work reliability - stability of access to all platform functions, including uninterrupted trading, deposit and withdrawal of funds, as well as the period of work on the market and the daily trading volume.
  • Commissions - the size of the commission for trading operations within the site and the withdrawal of assets.
  • Feedback and support - we analyze user reviews and the quality of technical support.
  • Convenience of the interface - we evaluate the functionality and intuitiveness of the interface, possible errors and failures when working with the exchange.
  • Platform features - availability of additional features - futures, options, staking, etc.
  • final grade - the average number of points for all indicators, determines the place in the rating.

The role of cryptocurrency in Latin America

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