Cryptocurrency in Latin America: The Game Changer for Emerging Economies

Daniel Urbánek
Daniel Urbánek
July 20, 2023
News, Education

Explore how cryptocurrency adoption in Latin America is rewriting the rules of finance. Understand the benefits, challenges, services, and the immense potential it holds.

Latin America has a long-term relationship with crypto due to several socio-economic factors. It has proven very useful for the local folk to be able to use crypto services, as it grants them non-state currencies and peer-2-peer financial systems. That is also part of the reason why Latin America made up almost 10% of the global crypto value received in 2022. The adoption of crypto in Latin America is on the rise by 40% compared to last year. In this article, we will have a look at what are the main adoption drivers, the benefits, and challenges, as well as how locals use their crypto.

Key Takeaways:

  • Crypto adoption in Latin America is accelerating rapidly with 40% growth in 2022. Latin America makes up around 10 % of the global crypto value received.
  • The main drivers behind this adoption seem to be the failure of local financial systems, resulting in long-term high inflation and an uncertain political climate.
  • The adoption of crypto is most prevalent in Argentina, where almost one-third of citizens use crypto in one way or another.
  • In less developed areas, citizens use stablecoins for day-to-day payments and BTC as a store of value. Speculation is mostly noticeable in large cities in Brazil and Chile.

The Current State of Crypto Adoption in Latin America

As stated in the introduction, the degree of crypto adoption in Latin America is rising rapidly. From Statista reports we can see that the ownership of crypto is actually more common in Latin America than it is in the more developed western world. Argentinians have shown to be the most eager crypto-adopters - 26% of the overall population owns crypto of some kind.

In the Western world, however, the record of highest ownership belongs to the U.S. - 10%. Which is not nearly as much as in Argentina. There are various reasons why adoption in Latin America is so high. Let's look at them more in detail.

Why is Crypto needed?

Inflation - In many countries in Latin America, such as Argentina and Venezuela, inflation rates are very high. This means that the money people earn and save buys less and less over time. Traditional banks and the governments that regulate them have been unable to prevent these high inflation rates. This has led many people to lose trust in their local currencies.

A showcase of the current inflation rates in Latin American states.

Cryptocurrencies, like Bitcoin and stablecoins, are seen as a solution to this problem. Unlike local currencies, the value of Bitcoin is not controlled by any government. Also, there is a limited amount of Bitcoin that can exist. These factors make Bitcoin more resistant to inflation. As a result, more and more people in Latin America are choosing to save their money in Bitcoin instead of their local currency.

Cross Border payments - Many people from Latin America live and work in other countries and send money back home to their families. This is called remittance. Many of the less-developed economies in Latin America rely heavily on remittances and external financial support. However, traditional institutions can make this process slow and expensive.

Cryptocurrency provides a game-changing solution to this problem. With blockchain technology, users can send and receive funds swiftly and securely, regardless of geographical boundaries. In fact, the official El Salvador Crypto-payment app Chivo has processed over $52 million in BTC remittances in the first half of 2022.

The Most Impacted States

Argentina - Argentinian Peso struggles with high inflation long-time. As of May 2023, it has reached a staggering 114.20%. citizens are turning to Bitcoin and stablecoins as their local currency deflates rapidly, and strict capital controls impede financial stability. 

Cryptocurrency adoption has soared, with 26% of Argentinians now utilizing these digital assets. The nation also supports a robust Bitcoin mining industry and an extensive shadow economy, where people use "Cuevas," or informal banking systems, to access hard currencies and cryptocurrencies alike.

Venezuela - Venezuelan national currency, the Bolivar, has depreciated by more than 100,000% from December 2014 to September 2022. This has led to a surge in cryptocurrency adoption. Despite economic hardships, Venezuelans received an impressive $37.4 billion in cryptocurrency in 2022, a 32% increase from the previous year. 

Stablecoins are particularly popular, making up 34% of small retail transactions. Venezuelans also had a brief period in 2021, in which they turned to play-to-earn blockchain games as an additional income source. At that time, playing Axie Infinity was more lucrative than the Venezuelan minimum wage.

Peru - Political turmoil and economic uncertainty in Peru have led to a growing interest in crypto, with exchange volumes seeing rapid growth. In Peru, USD is a legal tender, however, the government poses high fees on USD transactions and the exchange rates are not favorable. Instead, many Peruvians are bypassing this policy by using stablecoins, which lack a proper regulatory structure.

Which Financial Services Do the Locals Use?

The use cases of crypto within Latin America largely differ based on the socio-economic situation. Citizens from less developed areas struggle with access to traditional financial services and have hard time saving money. 

In these areas like Argentinian or Venezuelan smaller cities people use stablecoins and Bitcoin out of need because the financial institutions have failed them. According to data from Mastercard, stablecoins serve citizens mainly for day-to-day payments and Bitcoin as a store of value. Many Argentinians and Venezuelans also receive remittances in the form of crypto.

On the other hand, there are areas in Latin America, in which citizens engage in more speculative crypto behavior, like investing in memecoins or using DeFi yield protocols. We can find examples of this mainly in large cities in Brazil and Chile. 

The Bottom Line

Overall the rapidly increasing adoption of crypto in Latin America is showing to be a powerful trend in the face of economic and political instability. Citizens of the most affected states, such as Argentina, Venezuela, and Peru are using stablecoins and Bitcoin in their everyday lives and it seems to working well (or at least better than their state finances).

It is because of Latin America that we now see the first large-scale practical applications of blockchain making a positive change. This kind of adoption certainly paints a bullish picture in the wider context of the crypto-ecosystem.

Disclaimer: The content of this piece reflects the writer's opinion. This article is not intended to provide financial advice and is meant solely for entertainment and educational purposes. Investing in cryptocurrency involves significant risk. Capital is at risk, and returns are not guaranteed. Always conduct your own research.

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