The driving forces behind crypto adoption in Latin America in 2022
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Inflation, cross-border payments, asset tokenization, and non-fungible tokens (NFTs) have been among the top drivers for crypto adoption across Latin America in 2022, sources in the region told Cointelegraph, with exciting examples of progress in many countries.
Latin America accounted for 9.1% of global crypto value received in 2022, hitting $562 billion between July 2021 and June 2022 — a 40% growth over the period. Four Latin American countries are among the top crypto adopters in the latest Chainalysis Global Adoption Index.
Important developments have contributed to these results over the past 12 months. Authorities have been working on central bank digital currencies (CBDCs), establishing standards for doing business and clarifying regulations. Meanwhile, many companies in Latin America have been looking for ways to leverage blockchain technology and digital assets to solve the various challenges faced by countries in the region.
“The region is ripe for cryptocurrency adoption opportunities,” noted a spokesperson for cryptocurrency exchange Bitso, which operates in Brazil and Argentina among other countries in Central America, adding:
“In both Argentina and Colombia, the impact of inflation has prompted many to use cryptocurrencies. […] For Colombia, remittances are another key driver of adoption, even surpassing coal as a driver of dollar receipts in 2022, according to a report by Banco de Bogotá.”
Crypto Latam
Institutional acceptance and regulatory developments paved the way for Mercado Bitcoin to issue Brazil’s first stablecoin, the MBRL, backed one-to-one by Brazilian fiat currency through a partnership with Stellar. The country’s central bank plans to test its digital currency in 2023 and fully open it to over 200 million people in 2024. Also, a recently passed law will regulate virtual asset providers after years of discussions in Congress.
“Brazil has been a major player in the history of the crypto economy in Latin America for several reasons: institutional adoption, regulatory advances, and overall public approval. In that sense, public sector involvement is inevitable – this represents an extremely positive move that will improve the crypto-active industry while providing greater security for investors,” noted Fabrício Tota, Director at Mercado Bitcoin.
Colombia also plans to launch its digital currency to increase transparency and prevent tax evasion, which is estimated to account for nearly 8% of the country’s gross domestic product. In Chile, the central bank has postponed plans to issue the digital Chilean peso for a deeper analysis of the benefits and risks.
To combat inflation in Argentina, cities like Buenos Aires and Mendonza started accepting cryptocurrencies for tax payments. At the same time, the province of Santa Fe plans to engage in crypto mining activities to raise funds to upgrade rail infrastructure. These could be timely initiatives as Argentina’s inflation rate is expected to be 73.5% by the end of 2022, according to FocusEconomics panellists.
“Argentina is emerging as a hub for bringing technical development and resources to Latin America from the rest of the world,” said Ryan Dennis, Senior Manager, Stellar Development Foundation. “This is naturally feeding into blockchain development with a large number of startups in the country and with it a growing number of developers and founders collaborating in blockchain and crypto.”
tokenization
Latam’s crypto space has also benefited from the tokenization of investment products, giving many access to products previously only available to large investors. “Tokenization of digital assets has increased in recent years,” including assets like corporate bonds and real estate debt, Dennis noted.
Another reason contributing to the rise of tokenization of financial assets is the high interest rates in the region. Most Latin American countries have double-digit interest rates, leading investors to look for assets with predictable returns and lower volatility. This is an ideal scenario for financial companies working on tokenization and decentralized finance (DeFi) solutions.
Music and art tokenization are also trending in Latin America. “A revolution that has taken place in LatAm gives artists a window into the world of Web3,” explained Dennis. “There are many artists who have managed to leave their local communities and their country to become internationally known. That’s huge.”
The challenges facing the crypto industry in the region are similar to those around the world: lack of education about blockchain technology, insufficient regulation and a lack of trust. “The companies and projects that will lead crypto in Latin America over the next year will be the companies that are thoughtfully addressing the need for greater transparency and trust,” Bitso’s spokesperson noted.
