Industry Insights

Cryptocurrency Drives Opportunities in LatAm for Investors, Businesses, and Families

By
Ospree Team
May 10, 2022

Bitcoin’s inception introduced a major phenomenon– online payments directly between parties would no longer require financial institutions as intermediaries. This compelled a small community of original investors and true believers–the blockchain technology aficionados as well as the speculators who sought to make money from what they thought was a new market scheme.

What started out as a few lines of code committed to the Bitcoin blockchain back in 2009, has amassed a following far beyond that of a niche group of individuals. In 2022, ongoing trends and developments prove its value to an ever-expanding demographic, with Latin America (LatAm) holding prevailing relevance. 

Ospree asked Juan Llanos, Chief Compliance Officer at cyptomarkeplace Ripio “What do you think are the top 3 LATAM countries that are going to lead this industry in the coming years?”

“Brazil and Mexico for their sheer size, and all they have to gain. Uruguay for its enlightened, forward-thinking attitude to innovation, and the little they have to lose.”

Opportunity: Migrants are a Primary Segment of LatAm’s Growing Demand for Crypto

El Salvador became the first to adopt Bitcoin as a legal tender on June 9, 2021. Since then, LatAm was the recipient of 9% of the world’s value in cryptocurrencies and possessed P2P activity surpassing that of the U.S. and Europe.

Source: Chainalysis - The 2021 Geography of Cryptocurrency Report

There's one key takeaway from this: crypto has become a viable alternative to unstable national currencies, regardless of the perceived risks and volatility of digital assets. Cryptocurrency usage in the LatAm region tends to be dominated by Bitcoin. As well as being the first and most popular virtual currency used for business in Cuba, LatAm’s growing interest in crypto has brought Bitcoin payments to Brazil, Chile, Colombia, Mexico, and many more. Bitcoin is effectively being used to fill gaps in the most struggling economies, such as Venezuela or Argentina.

Many families and economies in the region rely heavily on remittances. Venezuela's projected five million emigrants striving to make ends meet abroad have helped lift the country to 7th in 2021 in terms of speed of adoption by way of remittance to their families back home in the form of cryptocurrency. Venezuelans have one of the highest rates of peer-to-peer cryptocurrency use.

Salvadoran migrants, by comparison, contribute about 24% to the country's gross domestic product (GDP). They often use Bitcoin or other non-national currencies to send money as it’s a more affordable alternative than traditional banking. Remittances in cryptocurrencies increased by 900% in 2021, which reportedly was led by Mexicans living in the U.S.

Brazil is Spearheading LatAm’s Investor Swarm

We are seeing significant players emerge in 2022 across the entire region. Sherlock Communications’ in-depth blockchain report has identified the fastest-growing exchanges and remittance companies across LatAm, with crypto adoption growing especially fast in Brazil. As of 2022, there were around 10 million users, which has increased from 2 million in 2021 - staggering growth. Brazil has an estimated 4.9% of its population owning cryptocurrencies, and as crypto wins acceptance from the general public and distances itself from police pages, these numbers continue to grow. As they do, a growing number of leading global exchanges are lining up to invest.

Emerging unicorn company 2TM, a holding in Brazil, controls one of the region’s largest crypto brokerages, Mercado Bitcoin. Global giant, Coinbase, has successfully acquired the company, with the aim to gain market leadership in LatAm. A number of companies in Brazil have been purchased by 2TM, which is speeding up its expansion into Chile, Colombia, Mexico, and Argentina.

Rio De Janeiro will become the first city in Brazil to legally accept cryptocurrency to pay taxes. Following El Salvador's legalization of Bitcoin in September 2021, a survey concluded that nearly half of Brazilians supported the adoption of the primary cryptocurrency. Paraguay, Argentina, Panama, and Cuba have also already begun considering cryptocurrencies as official legal tender. Hector Torres, of Torres Legal, commented on the new law in Panama, saying:

“Now Panama has a new law accepting the transactions and operations in Crypto. Also I would add that the traditional financial system in Latin America is trying to compete with alternative finance with the urge of NeoBanks and providing OTC services to individuals and corporations. We are adopting Hybrid finance models in El Salvador, and of course in Latin America to have financial options that we didn’t have in the past.”

Amidst inflation, play-to-earn (P2E) games are becoming increasingly popular in LatAm, with Argentina leading the trend, followed closely by Brazil. Many Argentines and Brazilians who could not otherwise afford the high cost of ingame assets (in the form of NFT’s) which are necessary to advance in games, are playing on behalf of American and German gamers who purchase and loan out these assets for a percentage of profits earned. Bloomberg News also reports that Latin America is home to 25% of all Axie Infinity users and represents the game's second-highest growth area.

LatAm is Still Amidst a Rickety Regulatory Environment

Apart from El Salvador, Mexico remains the only major country in this region that has clearly defined regulations governing cryptos as of 2021. The Law to Regulate Financial Technology Institutions, commonly known as the Fintech Law, was published in the Federal Official Gazette on March 9, 2018, and went into effect on the following day. But collaboration and dialogue between the Fintech sector and Mexican banking regulators date back to 2014. This bill aimed to bridge regulatory gaps and provide greater clarity to companies operating in gray areas. By creating policy initiatives that promote innovation, the government is aiming to increase access and inclusion in the country.

In dialogue with Ospree, expert in Financial Crime Prevention and founder of Fidesnet, Guillermo Zocco Vidal, has observed an exponential growth of crypto assets in the region, stating:

“This is not a temporary trend, but rather a permanent shift in how value is stored and transferred.”

Mr. Zocco Vidal shared that, although different approaches have been adopted to regulate and mitigate AML/CFT risk, there is a general consensus that information of the sender and the intended recipient of a transaction need to be shared between Virtual Asset Service Providers (VASPs).

Related content: The Travel Rule: History and Requirement

While Brazil and Argentina have expressed a positive attitude towards crypto adoption, clear regulations have not yet been established. In the near future, Panama will also consider going all-in with Bitcoin. However, Bolivia's decision to ban all types of crypto and exchanges stands in stark contrast to its neighboring countries and leaves a space for doubters to maintain their grip. 

Overall, LatAm’s regulatory ecosystem is trying to balance on uneven ground in light of the region’s increased demand for crypto. Regulatory bodies need to expedite compliance frameworks to match the pace with LatAm’s increasing demand or risk this current boom fizzling out due to existing legal concerns.

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