Cryptocurrency: A Path to Financial Freedom for South American Countries

In recent years, the rise of cryptocurrency has created a new financial landscape, offering innovative solutions to problems that have plagued traditional finance for decades. South American countries, in particular, stand to benefit greatly from this new financial frontier.

Financial Inclusion: A Priority in South America

Financial exclusion is a significant issue in South America, where millions of people are unbanked or underbanked. Traditional financial institutions often require extensive documentation and credit history, making it difficult for many people to access basic financial services such as savings accounts and loans. Cryptocurrency offers a solution to this issue by allowing individuals to participate in the financial system without the need for intermediaries. Cryptocurrency wallets can be set up in minutes, without the need for extensive documentation, providing a path to financial inclusion for millions of people.

Stability in a Volatile Market

South America has a history of economic instability, with many countries experiencing high inflation and currency devaluation. Cryptocurrency offers a potential solution to this problem by offering a decentralized and inflation-resistant store of value. With cryptocurrency, individuals can protect their assets from the impact of inflation, helping to provide stability in volatile economic conditions.

Remittances and Cross-Border Payments

Remittances play a significant role in the economies of many South American countries. However, traditional remittance services often come with high fees, long wait times, and a lack of transparency. Cryptocurrency offers a solution to this problem by allowing individuals to send money quickly, securely, and at a fraction of the cost of traditional remittance services. This has the potential to have a significant impact on the economies of South American countries, as more money reaches its intended recipients.

Cryptocurrency also has the potential to facilitate cross-border payments, allowing businesses in South America to expand their reach and participate in the global economy. This could be particularly beneficial for small and medium-sized enterprises (SMEs), which often face significant challenges in accessing traditional financial services.

Venezuela

Venezuela is unranked in this year’s index, as reliable and recent estimates of its PPP per capita were unavailable. However, if we use the World Bank’s 2014 estimate as a proxy, Venezuela ranks 11th overall.

Given Venezuela’s sharp downturn in the eight years since and growing crypto adoption, they could rank higher. Its national currency, the Bolivar, has depreciated by more than 100,000% from December 2014 to September 2022. Venezuela is also, despite its incredible fiat currency devaluation, still a growing crypto market in U.S. dollar terms. Last year, Venezuelans received $28.3 billion worth of cryptocurrency. This year, they received $37.4 billion, up 32%.

Much of this transaction activity is stablecoin-related. 34% of all small retail transaction volume in Venezuela consisted of stablecoin trades — more than any other country in Latin America. This aligns well with the store-of-value thesis behind Venezuela’s grassroots adoption of crypto.

This economic precarity also helps explain Venezuelans’ affinity for play-to-earn blockchain games, a few of which have (briefly) yielded economic returns that outpace Venezuela’s monthly minimum wage. As a result, Venezuela has the second most Axie Infinity players of any country this year, right after the Philippines, which placed 2nd in this year’s adoption index. Brazil, the next most active Latin American play-to-earn community, has the fifth-largest Axie Infinity player base.

Argentina

Argentina has had an inflation problem for much of the twentieth and twenty-first centuries. During the Latin American debt crisis of the 1980s, when the conflict was especially acute, Argentina’s inflation rate briefly eclipsed 3,000%. For that reason, explained Rodolfo Andragnes, Founder of ONG Bitcoin Argentina, “Argentinians have gotten used to buying U.S. dollars and literally storing them under the mattress.” It’s also why almost every high-level purchase is paid for in USD. “To buy a house, you go with 400,000 physical dollars, and you pay for the house. There are no 30-year loans or anything like that.”

But Argentina’s government enforces strict capital controls that make it hard to accumulate savings. Citizens with bank accounts can only swap enough Pesos at the official rate — 140 pesos per dollar — to save $200 per month. And on the black market, where much of the country’s exchange trading is actually done, the unofficial rate or ‘Dólar Blue’ is around 270 pesos per dollar. This has forced many Argentinians to get creative about how they save.

One popular solution: stablecoins. Why? Because “psychologically, Argentinians are using crypto for safety,” said Sebastian Serrano, CEO of Argentina-based crypto payments company Ripio. “That’s why you see so much use of stablecoins — because it’s a good digital alternative to storing physical dollars.”

Mexico

According to Felipe Vallejo, Chief Regulatory Officer at Bitso, the largest crypto exchange in Mexico, a high percentage of families in Mexico’s lowest socioeconomic classes receive remittance payments from family members abroad — and the crypto industry’s slice of that $51.6 billion market is rapidly growing. Bitso alone has already processed more than $1 billion in US-to-Mexico remittances in 2022 as of June, representing a year-over-year growth rate of 400% and a grip on 4% of Mexico’s remittance market.

Coinbase is also giving traditional cross-border retail payment providers like Western Union a run for their money. This February, Coinbase announced the launch of crypto cash-out services across 37,000 establishments in the country, including department stores, supermarkets, and all 20,000 branches of Oxxo, Mexico’s largest chain of convenience stores.

Colombia

Cryptocurrency is changing the banking industry in Colombia in several significant ways:

1. Financial Inclusion: Cryptocurrency provides a solution for the millions of Colombians who do not have access to basic financial services, such as savings accounts and loans. With a smartphone and an internet connection, individuals can easily set up a cryptocurrency wallet and start using digital currencies, providing a path to financial inclusion for many people.
2. Competition: Cryptocurrency is providing a new level of competition for traditional banks in Colombia, as it offers consumers an alternative to traditional banking services. This competition is driving innovation and improved services in the traditional banking industry, as banks look for ways to compete with the benefits offered by cryptocurrency.
3. Lower Costs: Cryptocurrency transactions are often faster and cheaper than traditional bank transfers, making it a more cost-effective option for many consumers. This is driving increased demand for digital currencies and is putting pressure on traditional banks to lower their fees and improve their services.
4. Improved Security: Cryptocurrency offers greater security compared to traditional banking systems, as it uses advanced cryptography and decentralized ledger technology to secure transactions. This is particularly important in a country like Colombia, which has a history of financial crime and fraud.
5. Alternative Store of Value: With cryptocurrency, individuals can protect their assets from the impact of inflation, helping to provide stability in volatile economic conditions. This is providing an alternative to traditional savings accounts and is helping to increase financial stability for many people in Colombia.

South American Retail Adoption of Cryptocurrency

The adoption of cryptocurrency by retail consumers in South America has been growing in recent years, driven by a combination of factors, including increasing awareness of the benefits of digital currencies, improved access to technology, and the need for alternative financial solutions.

Increased Awareness: With the growth of the cryptocurrency industry, there has been an increased awareness of the benefits of digital currencies, including faster and cheaper transactions, greater security, and the ability to participate in the financial system without the need for intermediaries. This has encouraged more South American consumers to experiment with cryptocurrency and has helped to drive its adoption.

Improved Access to Technology: Another factor driving the adoption of cryptocurrency in South America is the increased availability of technology, such as smartphones and internet access. With more people having access to these tools, it has become easier for individuals to participate in the cryptocurrency ecosystem and use digital currencies for everyday transactions.

Need for Alternative Financial Solutions: South America has a history of economic instability, with many countries experiencing high inflation and currency devaluation. This has led to a growing demand for alternative financial solutions, and cryptocurrency has emerged as a potential solution to this problem. With cryptocurrency, individuals can protect their assets from the impact of inflation, helping to provide stability in volatile economic conditions.

In recent years, we have seen a growing number of retailers in South America begin to accept cryptocurrency as a form of payment, including online retailers, brick-and-mortar stores, and service providers. This is a significant step forward for the cryptocurrency industry, as it provides consumers with a new and convenient way to use digital currencies in their daily lives.

Cryptocurrency has the potential to bring about significant change in South America, providing financial inclusion, stability in volatile markets, and cost-effective remittances and cross-border payments. As the cryptocurrency ecosystem continues to grow and mature, it is likely that we will see even more benefits for individuals and businesses in South America. It is an exciting time for the region, and the potential benefits of cryptocurrency should not be overlooked.