09 Jun A Look at Crypto Adoption in Latin America
Bitfinex announced an investment in the Chilean crypto exchange, OrionX. The investment was made to increase its foothold in Latin America, focusing first on Chile, and then expanding with Orionx into Peru, Colombia, and Mexico. We look at six key LATAM markets to better understand the state of crypto adoption.
Crypto Adoption in Emerging Economies is Leading the Way
One of the recurring themes in global crypto adoption has always been banking the unbanked. One of the goals of Bitcoin and crypto is solving the conundrum of financial inclusion for the billions around the world who do not have access to financial services.
As it stands, in many regions, large segments of the population have no access, or very limited access to financial services. In addition to the lack of financial inclusion, there are many nations with unstable currencies which suffer from double-digit, or in some cases, triple-digit inflation.
Along with the problems surrounding weak currencies and lack of financial inclusion, oftentimes these very same regions suffer from political conflicts and governmental instability. Due to these realities, many in the west see the developing world as the primary focus for improving societal problems through crypto adoption.
In the developing world, the three primary locations for crypto adoption are Latin America, S.E. Asia, and Africa. Out of these three regions, Latin America appears to be at the forefront of adoption. Many Latin American nations have all eyes on El Salvador, and their decision in 2021 to make Bitcoin legal tender.
El Salvador’s legal tender law for Bitcoin, and more recently, their Digital Asset Securities law governing other digital assets, have provided an interesting example and regulatory framework that many other nations in the region have been observing with intense interest. If El Salvador’s attempt at Bitcoin adoption on a national level is successful, we could see many other nations in Central and South America follow suit.
Crypto Adoption Trends in South America
South American nations, surprisingly, have more crypto adoption per capita than much larger developed economies like the US and EU. Despite being underserved by the traditional financial system, Latin America has a youthful population which is technically proficient, digitally savvy, online, and many of whom find employment remotely for US and EU companies.
Statista reports that the percentage of crypto ownership in the following Latin American nations of Argentina (21%), Colombia (15%), Chile (14%), Peru (13%) and Brazil (13%), is actually higher comparatively than developed nations with powerhouse economies like US (10%), Russia (8%), China (7%), Germany (7%) and Japan (4%).
This perfect storm of weak national currencies, political instability, a high degree of remote workers, and a large diaspora of citizens in other nations sending home remittances, creates the ideal climate for widespread crypto adoption.
On the regulatory front, the region does run the gamut of regulatory responses to crypto adoption: from El Salvador with a regulatory framework being put in place to Bolivia, which has banned crypto outright.
Six Nations with Thriving Crypto Adoption in South America
Argentina is currently in the middle of yet another currency crisis, this time with interest rates reaching 97 percent, as the economy faces a devastating inflation rate of 108.8 percent. Its citizens are trapped in rapidly deflating currency, and unable to exit the Peso due to strict capital controls. Cryptos like Bitcoin and Stablecoins provide them an escape hatch.
Because of the dire economic situation, crypto adoption in Argentina has exploded over the past 13 years. 16 percent of the total cryptocurrency use in Latin America, overall, is based in Argentina. Crypto penetration in Argentina is estimated to be around 12 percent, a huge number, and almost double that of Mexico and Brazil.
Argentina is home to a large Bitcoin mining industry, with miners setting up shop to take advantage of the cheap electricity, renewable energy, and devalued Peso to maximise profits while reducing operating costs.
Crypto is legal and taxable in Argentina, although the nation has a huge black market economy and exchange rate system which is almost double the official government exchange rate.
Many Argentinians use this shadow banking system of “Cuevas” to gain exposure to Dollars, Euros, and Digital Assets like Bitcoin and Tether. This informal system of Cuevas allows the average Argentine citizen to protect their wealth from inflation and avoid the strict capital controls.
Colombia is another nation in South America with a large amount of crypto adoption, although comparatively, Colombia’s market is smaller by volume than Argentina. It’s estimated that 6.1 percent of Colombians own cryptocurrency.
Colombia is also the fourth largest market by volume for Peer to Peer (P2P) trading worldwide. Colombia also has the second highest number of Bitcoin ATMS in Latin America. This preference for P2P trading comes from the strict taxation policies for crypto within Colombia, as well as a lack of regulatory clarity for exchanges and crypto businesses.
Colombia has made some attempts at regulation, most famous of which is the nation’s regulatory “sandbox”, a pilot program which partnered banks with exchanges, in order to offer regulated crypto services. The sandbox has not been the most successful, as the high number of unbanked citizens means that very few citizens have been actually able to participate.
While not quite as extreme as Argentina, Colombia also has issues with an unstable national currency, with the Peso’s inflation rate at 12.82 percent, this year. While Colombia is considered to have one of the healthier economies in the region, it is surrounded by neighbouring nations with entrenched economic issues.
Peru’s national currency is a bit more stable than that of Colombia, and much more stable than that of Argentina, with an annual inflation rate of only 8.4 percent, the highest in almost 30 years. What has been far more impactful in recent months, has been the political turmoil taking place in Peru.
Peru’s President Pedro Castillo was impeached in December of last year, leading to nationwide protests and conflict between protesters and police. Peru’s inflation and political uncertainty has led to many Peruvians buying crypto as a hedge against financial crisis.
While crypto volumes in Peru are less than in Argentina and Colombia, the volume is growing rapidly according to exchanges operating in the nation. South American exchange Buda reported that in 2021, their exchange volume tripled in Peru.
Peru is also fertile ground for stablecoin adoption, as even though the USD is legal tender in Peru, exchange rates and fees are prohibitively high, blocking access for many Peruvians. This results in a healthy demand for stablecoins as a more accessible alternative to gain exposure to USD denominated assets.
Peru currently has no definitive regulatory framework, although the tax authorities in the nation have chosen to tax profits from trading crypto, rather than the digital tokens themselves. The nation is considering regulations but has not provided any clear guidance as of the writing of this article.
Mexico is the second largest and most populated country in Latin America, and much of Mexico’s crypto adoption comes by way of remittances. Mexico has a huge diaspora made up of millions of migrants based primarily in the US, who send money back to their families in Mexico.
Mexico is the fourth largest recipient of remittances worldwide, with as much as $58 billion received annually, and now crypto is beginning to be used as the payment rails for cheaper faster remittances. Mexican crypto exchange Bitso reported processing over $1 billion in remittance payments in 2022.
Aside from remittances, Mexico is also home to thriving Bitcoin and Ethereum communities, with Mexican developers working on crypto projects, Mexico City is home to the Bitcoin embassy and many large cities have active monthly or weekly meetups. One of the nation’s most well known entrepreneurs, billionaire Ricardo Salinas Pliego, has admitted to holding a large portion of his wealth in Bitcoin and pushed for regulation.
Mexico’s Fintech law, passed in 2018 covers virtual assets and provides a regulatory policy for companies wishing to do business in the crypto industry. Aside from the Fintech law, Mexico has additional regulations regarding AML/KYC and Terrorism Finance laws which require those dealing in virtual assets to operate in compliance with these guidelines.
Mexico’s economy is relatively stable for Latin America, and Mexico’s national currency the Peso has an inflation rate of 6.25 percent. Mexico’s inflation is on the lower end of the spectrum for nations in Latin America, but Mexican crypto adopters still find the advantage in storing value outside the peso to avoid devaluation.
Chile has a small but rapidly growing crypto market, with around 2.6 percent of the population owning crypto. Crypto is perceived positively by Chileans with 36 percent of citizens who think that crypto should be recognized as an official kind of currency.
Chile has a thriving P2P trading market, as well as several local and international crypto exchanges which operate within the nation. As of now there are no regulations on the books, the country has been debating a so-called “Bitcoin Law” and considering the possibility of a Digital Chilean Peso in the form of a Central Bank Digital Currency (CBDC).
While Chile does not have any formal regulatory framework, they do have tax guidance for those trading digital assets or those doing business in virtual assets. Chile’s tax guidelines classify crypto assets as virtual assets which are not considered securities or foreign currencies, which means investors need to pay capital gains taxes.
Chile’s economy is mostly stable with an annual inflation rate 11.1 percent for 2022, however, the average inflation rate since 1971 has been 41.6 percent per year. Chile also has a financial inclusion rate of about 63 percent, so a little less than half of citizens do not have access to financial services. A large portion of Chileans could benefit from financial inclusion by way of crypto.
Brazil is the largest and most populated country in Latin America, and is the 5th largest crypto market in the world. Brazil has a high degree of crypto adoption thanks to its digitally savvy population, and love for innovation.
Brazil’s government took the initiative to apply existing regulations to cryptos or “virtual assets”, and cryptos are effectively regulated and taxed under existing laws. In December 2022, Brazil’s president signed a law which created a virtual asset service provider’s licence and provided regulations for businesses.
This has made Brazil friendly towards crypto businesses, and the country ranks 7th in the world for countries with the most crypto exchanges. The youthful digitally native population along with the central bank’s national payment system Pix, which lets anyone pay instantly from their bank account using a mobile app and QR codes, has smoothed the path for crypto adoption.
It’s estimated that around 7.8 percent of Brazil’s population owns crypto assets. Brazilians love crypto, and are one of the largest adopters of stablecoins. It’s estimated that Brazilians traded $11.4 billion in stablecoins in 2022. Stablecoins have become widely adopted, and increasingly are becoming a method of payment. Brazilian startup Smartpay has released a wallet which holds stablecoins and works with Pix allowing instant conversion.
Brazil is Latin America’s largest crypto market, and Brazil’s economy is also the largest economy in Latin America overall, as well as the 10th largest economy globally. Brazil’s inflation is relatively low, at 4.65 percent.