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You may not want to hear another word about the pandemic caused by Covid, but it is impossible not to when it has affected multiple areas of life. More than one country can show that it is the financial region that has been affected the most, as political changes and constant uncertainty have moved the currency markets.
Latin America was one of the hardest hit regions at the end of 2021. Four of its currencies in the top five were among the most depreciated against the dollar worldwide: the first was the Turkish currency (-94.85%); It is followed by the Argentine peso (-20.49%), Chilean (-18.68%), Colombian (-17.05%), and Peruvian sol (11.93%), according to Alianza Valores.
On the other hand, despite these declines in traditional currencies, the region also closed in 2021 as one of the major adopters of cryptocurrencies, above China and the United States. Why this discrepancy?
More Cryptocurrencies for Latin America
The region has a market with a growing adoption of cryptocurrencies, according to EBANX. “They have become a tool for financial inclusion in Latin America, as a way to transfer money at a lower cost.”
Thus, the countries with the best cryptocurrencies, according to Statista, are: Peru (16%), Colombia (15%), Argentina (14%), Brazil (13%), Chile (12%), Dominican Republic (10%) and Mexico (10%).
It is worth noting that Argentina, Chile, Colombia and Peru top both lists. This is not a coincidence at all. Argentina finished 2021 with an inflation rate of 52%; Chile faces uncertainty from new government; Colombia experienced several violent protests. Peru also faces a new government mandate. Added to this is the economic instability and the health crisis caused by the epidemic.
All these factors affect the foreign exchange market. In this regard, Jose Rodriguez, Director of Blockchain Land . said: Contxto Many people in these countries do not trust their currency, the government or the central bank. He pointed out that one of the reasons for their adoption of cryptocurrencies is their flight from traditional currencies and economies. “People are looking for other investment options.”
Other reasons Latin America has emerged here is that “people are looking for safer alternatives to keep their money in the face of economic instability.” Jose Luis Gonzalez Perlin, cryptocurrency analyst at Bitso, said: Contxto The region has made a huge leap with the adoption of cryptocurrencies.
In other words, there was a generational leap. While other countries and regions were gradually adopting cryptocurrencies, Latin America had more tools that made it easier to use it, and more market players. This has resulted in the region showing a noticeable rise in a short period of time.
Cryptocurrencies vs. traditional currencies
According to EBANX, individual consumers in Latin America represent the majority of cryptocurrency users (over 80%). The rest are commercial and investment institutions.
The reason for this difference is that individuals reap multiple benefits. For example, cryptocurrencies in the region are largely used by immigrant communities.
Gonzalez Berlin and Rodríguez agrees that other benefits of cryptocurrency that people find in Latin America are:
- Send remittances: It is not required as many intermediaries as in traditional banks, so the commissions are much lower. This business was booming in Mexico.
- Maintaining savings: This is achieved through the use of stablecoins pegged to the dollar. This cannot happen with many local currencies because they often depreciate due to external factors. In Argentina this has greatly helped people maintain the value of their savings.
- This amount: It allows us to remove barriers and move money from one point to another with ease.
- Investing with higher returns than inflation: Cryptocurrency investment platforms are becoming increasingly friendly. They allow investments from $5 to get more capital with higher returns than those of traditional banks, and are protected from inflation.
- Financial freedom: People have more control over their assets and how they are used.
- Loans: If you have a cryptocurrency, you can put it as collateral (as if it were pledged) in a decentralized fund. In return, you will get a stable currency that can represent the dollar and thus get a source of financing (money) immediately. Once the loan is paid off, the user will get their cryptocurrency back.
Here are the predictions between 2022 and 2025
While El Salvador pioneered the adoption of Bitcoin as legal tender, the Bank of Mexico (Banxico) announced the creation of its own digital currency. These are clear signs of a more stable adoption of cryptocurrencies in the region.
Gonzalez Berlin expressed his doubts that the adoption of cryptocurrencies in countries where local currencies have declined will continue. They are seen as a refuge for economic stability in the face of inflation; And as part of the confidence due to the general disillusionment with the traditional financial system.
He also noted that real use cases that go beyond simply storing value will begin to emerge. For example NFTs, concepts such as the metaverse, video games and decentralized finance.
Additionally, he said, financial inclusion should be measured differently. It is no longer just a matter of whether or not you have a bank account. Other indicators should be taken into account, such as whether people have access to the cryptocurrency ecosystem.
Rodríguez sees that despite its volatility in the short term, Bitcoin will have an upward trend in the medium to long term. He stressed that there is no way for other currencies to maintain their value. The last year saw the largest amount of new money being printed in the majority of the world, reducing the value of the currency.
The two experts agreed that central banks would start creating their own digital currencies. Rodríguez emphasized that this will give more transparency and people will be able to see the management of these assets. Gonzalez Berlin pointed out that this could be complementary to the evolution towards an inclusive digital economy.
“We will interact with cryptocurrencies without knowing it, just as we do today with the Internet,” says the Bitso analyst.
Thus, until the end of last year, the cryptocurrency platforms that stood out in Latin America were: Mercado Bitcoin (Brazil), Bitso (Mexico), Ripio (Argentina), Coinbase (Brazil), Binance (Brazil), and LocalBitcoins (Finland), Paxfall (USA), Gemini (New York City) and Kraken (USA).
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