Latin America and crypto: A future of opportunities

Bitcoin has quickly entered the mainstream consciousness after first emerging in tech and finance circles in 2009. It’s now firmly the most popular and well-known cryptocurrency, with over 20% of Australians owning it and almost 90% familiar with it. But while more advanced economies are still yet to fully embrace Bitcoin and cryptocurrency in general, many developing nations are actively welcoming it.

Regulators and finance professionals in Europe and the US, for example, have been quick to warn investors about the volatile nature of crypto trading. Yet for those in developing countries with a history of financial instability, or limited access to traditional banking services, the benefits of decentralised currency are plenty.

Below, we explore the key factors behind crypto’s growing appeal in such territories – including many Latin American countries in particular.

Drivers of increased crypto adoption in developing economies

19 of the top 20 countries for crypto adoption in 2021 were emerging or frontier markets, according to analysis by data research company Chainalysis. This is largely because cryptocurrencies are an appealing alternative in markets with weak national currencies, where residents are forced to contend with:

• * Unpredictable inflation

• * Fluctuating exchange rates

• * Inaccessible or expensive banking systems

• * Regulatory restrictions or uncertainty

In comparison, bitcoin has its own rules, monetary policy and consensus - with a value unaffected by the actions or decisions of any one individual or organisation.

For individuals working abroad and sending money back home, cryptocurrency exchanges also offer better value than traditional money transfers. The ease and affordability of remittances can be essential for families across the Americas, Africa and parts of Asia, where cross-border transactions are often prohibitively expensive.

Opportunities abound in Latin America

One region where crypto is being enthusiastically adopted is Latin America, where political and economic instability is rife. A 2021 Mastercard survey found that three-quarters of Latin American youth were interested in crypto, with around 37% planning to use it in 2022. Venezuela, Argentina, Colombia and Brazil make up four of the top 20 countries with the highest levels of crypto adoption.

Practices such as CFD training, which can be used with cryptocurrencies, are also common in these economies. Many have eyes on Brazil in particular, which has the region’s largest economy but is currently facing a cocktail of economic imbalances that threaten the Brazilian real, its official currency.

Last year meanwhile, El Salvador became the first country in the world to adopt bitcoin as legal tender - meaning merchants from supermarkets to rural coffee shops must accept it as payment. This news came in 2021 within weeks of China imposing stricter controls on its use, but has been seen as just the beginning for Latin America and the wider world.

Concerns remain about crypto adoption in emerging economies

For all its positives and potential, many in advanced economies remain sceptical about widespread crypto adoption. Some experts hold particular concerns about less wealthy nations being the ones to take more financial risks. The international response to El Salvador’s move to embrace bitcoin has been mixed, for example, with some seeing it as dangerous political point-scoring.

But for a currency that’s volatility is influenced by increase or decline in adoption, some argue that countries such as El Salvador could actually reduce their risk by embracing it. Either way, residents across the wider region will be watching on intently as their governments make similar advances.