Emerging Markets & Cryptocurrency
The Perfect Storm
This research was sponsored by Luno Global, a platform that allows users to buy, save and manage cryptocurrencies.
Cryptocurrency markets in emerging economies like Africa, India, Vietnam, Argentina, and El Salvador have benefited from robust growth. What are the key factors fueling the demand for digital currencies in these markets, and why now?
A former classmate from college, who I will refer to as Michael, sought to use my PayPal account to receive some money he made by running an online graphic design business. Due to the fact that most banks in our region are not PayPal friendly, he had to pay $50 in fees for the $320 that was sent to him.
Michael is not alone. A software coder in Lagos, Nigeria bills her clients in London and receives payment in bitcoin so she can avoid both naira’s low purchasing power relative to other fiat currencies and the high expenses presented by the banking system.
A Brazil-based dentist gains exposure to multiple digital currencies by taking his monthly savings and putting it into an exchange-traded fund that invests in a basket of these innovative assets.
El Salvador, which has a population of 6.5 million, made the bold move of becoming the first nation in the world to adopt bitcoin as legal tender. After purchasing significant amounts of the cryptocurrency, it plans to build 20 schools using profits contained in its Bitcoin Trust.
In this article, we plan to explore the various factors driving the need for digital currencies in emerging markets, with a focus on Africa, Latin America, and Central & Southern Asia.
Reasons why Cryptocurrency Has Experienced Significant Adoption In Africa
Africans are coming to terms with cryptocurrencies as a form of alternative income based on the pressing rates of unemployment and underemployment.
Earlier this year, President Muhammadu Buhari told Nigeria’s youth that the nation’s government had no jobs available for college graduates. In 2017, Yaw Osafo-Maafo, the senior minister of the Republic of Ghana, stated that the country’s public sector did not have any openings and might even lay off some workers.
With as little as $100, and armed with a knowledge of cryptocurrency, one can begin a peer-to-peer (P2P) business on either Paxful, Remitano, or LocalBitcoins.
Africans are dumping their local fiat currencies due to their instability and hyperinflation, preferring to store their wealth in stablecoins on various exchanges instead of keeping their money in the bank.
Cryptocurrencies are being used increasingly for global remittances, as more families harness them to send money abroad in order to avoid high expenses.
Latin America in the Eyes of the Crypto World
El Salvador is currently leading the crypto blaze on this continent, but before a small nation of more than 6 million people takes the better half of this piece, let’s take a look at some of the bigger players in the region.
Brazil, Argentina, and Venezuela are major crypto hubs of this continent, with Argentina and Venezuela, in particular, benefiting from substantial activity. Hyperinflation, coupled with unrealistic exchange rates imposed by these countries, have resulted in the citizenry searching for alternatives to their own local currencies. This brought Bitcoin to the limelight, and it seems like the people made a rational choice.
Venezuela experienced a severe economic downturn in 2015, and the country finished the year with a 275% inflation rate, while those of Brazil and Argentina came in at 10% and 30%, respectively.
With conditions like these, any reasonable person would look for a way to preserve the purchasing of their wealth, and Bitcoin, of course, was the best alternative of all.
According to Chainalysis’s contemporary report on the region, Brazil controls the greatest share of crypto activities within this particular area, with its crypto market receiving $90.9 billion during the period between July 2020 to June 2021. Venezuela, in comparison, received $28.3 billion, less than one-third as much.
However, Brazil’s P2P activity is on the lower side, accounting for $90 million worth of transactions in that time, data from the report shows. In this respect, it lagged behind Chile, Colombia, Peru, and Argentina.
Another thing we can glean from this report is the extent to which institutions are involved in the Brazilian cryptocurrency market. In this South American nation, most crypto activity takes place on DeFi platforms, where transactions are more likely to be sizable.
“The data shows that large transactions make up a much bigger share of DeFi activity, suggesting that DeFi is disproportionately popular for bigger investors compared to cryptocurrency as a whole,” the report states.
In comparison, Venezuela’s market is made up of smaller transactions, which show grass-roots adoption driven by necessity.
Another observation involves the potential relationship between the growth of social media and the rising use of digital currency. Combined, Brazil, Mexico, Colombia, Argentina, Peru, and Chile have over 300 million YouTube users, according to Statista.
Further, WhatsApp, Facebook, and Instagram are all widely adopted in this region.
These social media platforms are experiencing widespread use at the same time that there is strong demand for using digital currencies to make payments for online activities.
Central And Southern Asia
Vietnam, India, and Pakistan were the three highest-ranked countries in Chainalysis’s 2021 Global Crypto Adoption Index, which aimed to quantify how much these jurisdictions were using digital currencies.
When it comes to adoption, this region is apparently a force to be reckoned with.
Central and Southern Asia received a combined total of $572.5 billion in value between July 2020 and June 2021, making this region the world’s fourth-largest crypto market. The aforementioned figure accounts for 14% of global transaction activity during that period.
The crypto markets of India and Vietnam look a bit mature, with most activities taking place on DeFi platforms. However, others, like Thailand, China, and the Philippines, also have notable activities.
Experts believe that people from this region have a higher appetite for gambling. Because there is a lack of alternative investment opportunities, the cryptocurrency market is very attractive here. Armed with digital currencies, those with an understanding of the block market can now put their money to work again.
Is Cryptocurrency a Perfect Storm?
This trillion-dollar global monetary network is providing people living under oppressive regimes like China, Russia, and Afghanistan with the opportunity to preserve the purchasing power of their wealth and send their money overseas.
A storm basically connotes a great disturbance in the atmosphere, which coincides with substantial changes in the weather. Cryptocurrency came out of nowhere in particular (like a surprise storm), not to destroy, but to solve a problem.
Bitcoin, for example, the world’s most prominent digital currency, came into existence right in the middle of the great financial crisis, a new payment system designed to take place without requiring banks or the government.
We began this study with a problem (Michael’s PayPal ordeal), then we added stories of how crypto is helping solve similar problems in the lives of people living in countries like Brazil and El Salvador.
Next, we zoomed out a bit, looking at emerging markets to see how crypto is having an impact there.
In each region studied, we see digital currencies serving a particular need. In Africa, crypto is providing employment opportunities for the youth, as well as an alternative means for businesses to make international transactions.
In Latin America, these programmable currencies are calming the storm of hyperinflation, and more recently, they have been helping create economic emancipation, as in the case of El Salvador.
Meanwhile, In Asia, cryptocurrencies are serving as an alternative investment for young people.
The crypto storm came together at the perfect time, providing opportunities for individuals, companies and governments. It offered interested parties a means of making cheaper, faster payments without banks at a time when there is widespread distrust in financial institutions.
Further, it gave people in specific countries the ability to escape highly controlling government regimes. Finally, it provided many industry participants with another form of alternative investment.
This content is for educational purposes only. It does not constitute trading advice. Past performance does not indicate future results. Do not invest more than you can afford to lose. The author of this article may hold assets mentioned in the piece.
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