Who would have thought the president of a country would proudly tweet their love for crypto? I sure wouldn't have even imagined this in my wildest dreams.
It's no secret that 2021 was a year of change. With companies like General Motors rebranding themselves to accompany the next wave of technological evolution to Elon Musk openly supporting the adoption of Dogecoin, it seems like risk is the new normal.
Now, although it may seem strange that the president of El Salvador buys Bitcoin and let alone tweets about it, it shouldn't have been a surprise that citizens of these countries would eventually adopt crypto. Using it as a means of evading their country's problems, and more definitively, the difficulties associated with their country's economic/financial situation, it always seemed like a smart move.
Taking a look at Satoshi's whitepaper, he argues that the inherent issue in the traditional financial system is the reliance on trust. Simply put, developing countries don't have the luxury to trust their leaders and government institutions with their money.
What's more, this lack of trust stems from economic instability. A common theme among under-developed regions is the devaluation of their native fiat currency and the banks' high transaction/remittance fees. The adoption of crypto aims to solve this issue.
In this article, I will be analyzing three developing regions: Africa, Central & Southern Asia and Oceania, and Latin America. In these three regions, crypto isn't just a want for citizens; it's a need.
Africa
Although African countries have the smallest crypto economy of any region, they have the highest volume of peer-to-peer (P2P) remittances worldwide. This integral function of blockchain tech, along with the other advantages of crypto, create stability in the population's financial situation.
Overseas & intra-continental transfers
The African region accounts for a meagre 2% of the global crypto value sent and received from 2019 to 2020. This isn't precisely where Africa shines. They show promising growth in other aspects like overseas & intra-continental transfers.
In sub-Saharan Africa, P2P Bitcoin trading has surpassed North America's volume, thus becoming #1 globally in this regard. However, because fees for $200-and-under transactions with their fiat currencies average at a whopping 9% of the total transaction value, citizens need other options to counter the high cost. This is especially true since fees can reach double-digits, the highest of any region.
As Africa continues to strengthen trade ties with China, a significant share of the region's P2P trading occurs with the East-Asian powerhouse. African businesses import goods from China while bypassing high transaction fees and the lack of banking infrastructure to send money overseas. Moreover, since a portion of the Chinese labour force has been sent to work in Africa, sending a part of their income back home through P2P trading is expected.
Crypto as a store of value
African countries are well-known for mass currency devaluation. For example, the South African Rand has lost over 50% of its value against the U.S. dollar in the last decade.
The general population cannot hold their savings with banks because of this. Their money will just depreciate sitting in a savings account, as even the interest can't beat inflation. Therefore, as the country's fiat currency devalues, P2P trading activity rises. More and more individuals are beginning to learn about the potential of Bitcoin as a store of value.
Central & Southern Asia and Oceania (CSAO)
The CSAO region differs from Africa in several aspects. First, the region has a relatively medium crypto activity, accounting for 12% of all crypto volume from 2019 to 2020.
What's interesting about this region is the high volume of retail transactions. For example, 15 to 22% of the global $10,000-and-under transactions were from CSAO. It is believed that because of the high-remittance fees received from overseas transactions, individuals sought crypto for its P2P trading capabilities.
Vietnam
One country that is a particular case in the CSAO region is Vietnam. The Vietnamese are a global presence because of their ex-pat communities. These overseas communities produce a need for fiscal transfers to their families back home. As we've explored previously, crypto solves this need as remittance fees are much lower using crypto as a transfer agent.
In addition, Vietnam has limited access to traditional investment vehicles. Since citizens want to invest their money into the market, they opt to stick with crypto as it is one of the only ways to turn a profit with passive income.
Also, 70% of Vietnamese people have yet to open a bank account because of inadequate banking infrastructure, including ATMs. This is yet another reason as to why crypto is so widely adopted in Vietnam
I could go on and on about crypto adoption in this country, but these are the key points that stand out in Vietnam's quest in popularizing crypto among its population.
Latin America
Latin America doesn't necessarily have the same problem as the CSAO region. There doesn't seem to be a lack of banking infrastructure. What is truly the issue in most of its countries, like in Africa, is the constant level of hyperinflation.
I was born in Argentina and moved to Canada when I was young. If there's one thing that stands out to me from my parents, especially when we first initially moved, is their constant frugal outlook of money. Argentina has been riddled with hyperinflation for decades with the Peso collapsing several times. Embarrassingly enough, even the fiat currency has been switched again and again to counter the nation's decades-long issue.
It is widespread for people to exchange their Argentine Pesos for USD in the black market. Suppose an individual does not exchange their money into a stable fiat currency or asset. In that case, they may lose the entirety of their savings to the Peso's devaluation in less than a month. Yes, it's that serious.
Unfortunately, Argentina will most likely continue to have this problem. So instead, let's go further north to a country that made international headlines a couple of years back.
Venezuela
It saddens me to read stories of Venezuela. Venezuelans have been fighting a long and hard battle on multiple fronts. Not only is the political composition of the state split, but the socialist economy is failing the people. Cutting costs of basic human necessities like toilet paper may provide a solution in the short run, but that's about it.
Businesses can't turn a profit with the mandatory low pricing of their products. Citizens have turned to gigs to make some sort of income. An unstable income limits the chances of citizens opening a new bank account. Even if they can open a bank account, the cost and bureaucracy of financial systems are just too high. Combine all this with U.S. sanctions of Venezuela's oil sector, the country's key industry, and you have a disaster that is ongoing with no light at the end of the tunnel.
Thankfully, crypto may just be that light. It is perfect for P2P transfers, especially from countries like the U.S and China. As China expands its global presence, Latin American importers purchase Asia-based exported products with crypto, eliminating banks entirely from the mix.
This isn't only apparent in overseas transfers. Venezuela is the leading Latin American country in digital payments, with 28.6% conducted digitally. This is almost quadruple the region's average. Grassroot cryptocurrency programs and organizations, like Fintech, have emerged to supply the demand for non-fiat options.
Add on Bitcoin's promising store of value and you have a (somewhat) escape from the harsh economical situation. Of course, the country won't resolve all of its issues with crypto, but it will definitely help the people restore some financial integrity in their country.
What's next?
Crypto will continue on its journey to mass adoption, especially in developing countries where it's most needed. What could lead to further issues is the governments' decisions of regulating crypto. As we've seen in recent light, China has banned crypto entirely. Other countries like Vietnam and Cameroon have regulated crypto to the point that impedes its citizens from using it.
As we go into 2022, I have no doubt that we will see more bans on crypto. Only a couple of countries like El Salvador have fully embraced the digital asset, but more often than not, authoritative leaders despise the idea of decentralization. I mean, it does go against the fundamental idea of trusting the government.
I'm excited to see what will occur next year. Who knows, maybe Bitcoin Cash will become a legal tender of Canada. At this point, you really can't limit the possibilities of the adoption of crypto.
Sources:
https://www.ft.com/content/1ea829ed-5dde-4f6e-be11-99392bdc0788
https://vietnamdaily.ca/culture/vietnam-ranks-1-globally-for-cryptocurrency-adoption/
https://restofworld.org/2021/venezuela-digital-payment-adoption/
