Cryptocurrencies: The future of trade in Latin America?

If you think it sounds incredible, it is. And every year more and more people are using cryptocurrencies in Latin America. Since the beginning of 2020, the world has changed a lot. The COVID-19 pandemic has hurt us all, and one of the hardest hit sectors has been commerce. Merchants and consumers have had to adapt to a new world of online shopping and digital payments. One of the ways this change has manifested itself is the increased use of Bitcoin. While the use of Bitcoin and other cryptocurrencies has increased in recent years, 2020 was a particularly good year for these currencies; as many began investing and acquiring Bitcoin as a way to hedge against inflation. An example of this are countries like Venezuela and Argentina which have suffered from hyperinflation during the last few years and although Bitcoin is volatile, the citizens of these countries prefer it instead of the local currency. 

In the graph below you can see the adoption of crypto vs. internet in a (worldwide) comparison.

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According to the CEO of Coinbase, it is estimated that 1 billion people will be using cryptocurrencies by 2032. This shows that it is an industry that is on the rise, with cryptocurrency users growing at around 80% per year, making it the fastest rate of technological adoption in the history of mankind. Bitcoin is the first digital cryptocurrency, with a great economic impact, however, behind it have emerged others, called altcoins. However, none of them is like Bitcoin. The case of Ethereum differs from Bitcoin, as it was not created with the purpose of being digital money, instead it focuses on the development of smart contracts and decentralized applications also known as Dapps.

According to a study by the consulting firm Gartner, 20% of large companies in the world will use central bank digital currencies (CBDC) for commercial transactions by 2024. Therefore, it is expected that the socioeconomic impact of these currencies will be increasing. On the other hand, different governments around the world are aiming at the adoption of their own cryptocurrencies, known as CBDCs, in which they have control. These currencies, while promising, do not replace the freedom and decentralization unique to the philosophy and technological nature of Bitcoin.

Bitcoin offers numerous advantages over other means of payment, such as credit cards, government digital currencies (CBDC) or fiat money. A clear example is Bitcoin being a secure and pseudonymous means of payment. With Bitcoin, payments are made directly between parties without centralized intermediaries (such as banks), which significantly reduces transaction costs. In addition, Bitcoin is a very fast means of payment, almost instantaneous if the Lightning network is used, since transactions are confirmed in a matter of milliseconds.

To prevent volatility for businesses receiving Bitcoin, solutions such as Osmo Business help merchants automatically convert incoming BTC to their local currency. Thus, the risk of volatility is eliminated, significantly reducing transaction costs and times compared to transfers sent through the traditional financial system.

Despite the ups and downs of the Bitcoin price, the number of merchants accepting Bitcoin has grown exponentially. Countries like El Salvador and Honduras(Bitcoin Valley) are even developing pro-bitcoin cities. In Guatemala there are also community initiatives such as @LakeBitcoin, @BitcoinLake, @BitcoinBeachGt and @elBarrioBitcoin which are, allying with businesses to encourage instant payments through the digital currency and at a fraction of the cost compared to accepting credit cards. 

Why is the use of cryptocurrencies increasing in Latin America?

Every year new projects, communities and companies are born that encourage its use, Latin America is a fascinating case, countries like Argentina, Colombia, Venezuela, El Salvador and Guatemala with platforms like Osmo Wallet provide technological solutions and contribute to the ecosystem, being a friendly, fast and cheap entry point.

In Latin America, the main protagonist of the Chainalysis report was Venezuela. As the report explains, the country's third place in the ranking represents a clear example of how digital assets appear as a recurrent solution to face the economic crisis.

"Our data shows that Venezuelans use cryptocurrencies more when the country's native fiat currency is losing value due to inflation, suggesting that they turn to these assets to preserve savings that they might otherwise lose," the report added.

How can cryptocurrencies be used in trading?

In Guatemala, Osmo Business offers a POS with instant convertibility to local currency so that merchants can accept Bitcoin payments without being affected by volatility, and has very low commissions compared to other payment processors. This reduces the risk and fear of a new technology, which is especially common in Central American countries, however, it is becoming more common in physical and online stores through this new solution in Guatemala.

Second, some traders are using cryptocurrencies as a form of investment. Because the price of cryptocurrencies has historically gone up even though it has been down in recent months, many traders see these coins as a way to make long-term profits.

Adoption in Latin America: The case of Argentina Why is bitcoin adoption growing?

Not everything is the price of bitcoin in the market and the Argentines know that, the freedom of decentralization; the great ideal of the first cryptocurrency. Argentina lives a daily inflation of its national currency so the volatility of Bitcoin is not something they see it strange, Argentines have mainly adopted cryptocurrencies to have freedom to move their capital and get dollars.

Getting dollars in Argentina can be a journey and change it the same, one tells you a price and another gives you a very different one, cryptocurrencies to operate in the global market without identity, without race or sex allow 100 USDT are 100 dollars, in Argentina or Antarctica; for withdrawals for obvious reasons the cashier / seller / buyer will take a commission, however, in the ecosystem we are all equal.

Argentines have taken advantage of this in metaverse ecosystems such as Decentraland where they do business, sell clothes and exclusive objects.

Argentina's Central Bank bans the purchase of dollars for those who acquire cryptocurrencies

Recently, in July of this year, Argentina's central bank announced some measures to slow down the rise of the dollar against its currency. According to Communication A7552, it states the following: 

(vii) has not delivered funds in local currency or other local assets (except funds in foreign currency deposited in local financial institutions) to any human or legal person, resident or non-resident, related or not, receiving as prior or subsequent consideration, directly or indirectly, by itself or through a related, controlled or controlling entity, foreign assets, crypto-assets or securities deposited abroad.

Therefore, those users in Argentina who make a purchase of any cryptocurrency will have to wait at least 90 days to acquire dollars. What we can see is a certain use by citizens but also a certain governmental interest in order to control cryptoassets. 

Additional sources:

1. https://eleconomista.com.ar/cryptos/la-adopcion-criptos-argentina-subiria-235-2022-n51833

2. https://www.bbva.ch/noticia/criptomonedas-ranking-de-usuarios-y-cajeros-de-criptomonedas-en-el-mundo/

3. https://www.criptonoticias.com/finanzas/gartner-20-grandes-empresas-mundo-utilizaran-cdbc-2024/