Latin Americans still invest in cryptocurrency despite crisis

This is an excerpt from an article written by Carlos Gutiérrez Bracho for Connect and published in Global Voices under an agreement between these media outlets.

The collapse of the FTX cryptocurrency exchange, created by Sam Bankman-Fried in 2019 and declared bankrupt on November 11, has damaged confidence in the digital currency industry as a whole. After becoming one of the largest crypto platforms with a valuation of $32 billion, this is now seen by many as a painful reminder of the risks of investing in this digital market. Is this the beginning of the end for cryptocurrencies??

Various news outlets often make gloomy predictions about the cryptocurrency market, which have intensified since the FTX crash. However, not all countries share these views. For example, while a 200 percent decline in the cryptocurrency market “shocked” speculative investors in the United States, online news outlet Rest of the world indicated that Latin America cryptoentrepreneurs and the enthusiasts are “more optimistic”. This may be because they are more used to such volatility.

Argentina has an annual inflation rate of 88 percent and it is one of the countries in this region with the highest volume of cryptocurrency transactions. According to Argentine newspaper The nation, “It is estimated that 17 percent of Argentine citizens use cryptocurrencies.” Despite their volatility, “these assets provide a safe haven of value from unstable economies. In certain cases, they also generate returns.”

There has been a steady increase in the use of cryptocurrencies throughout Latin America. In fact, the 2022 New Payments Index shows that 51 percent of consumers in Latin America and the Caribbean have made at least one transaction with crypto assets. Some 54 percent are also optimistic about the performance of digital assets as an investment..

On average, Latin America and the Caribbean held 6 percent of the total global cryptocurrency volume between 2017 and 2020. In 2020, it rose to 15.8 percent and has been increasing exponentially ever since, according to the report. Cryptocurrencies: a financial crime risk in Latin America and the Caribbean by Global Financial Integrity. Additionally, according to the 2021 Global Crypto Adoption Index, there were four Latin American countries included in the top 20 in the world: Venezuela, Argentina, Colombia, and Brazil..

A market that grew 40 percent in Latin America

As featured in 2022 Cryptocurrency Geography Report Per Chainalysis, Latin America received $562 billion worth of cryptocurrencies between July 2021 and June 2022. This is a 40 percent increase relative to the same period last year. In addition, according to their numbers, this region has 5 of the 30 main countries in the market: Brazil (seventh place), Argentina (13), Colombia (15), Ecuador (18) and Mexico (28).

Likewise, El Salvador is a prominent country in this region. This September marked his first anniversary of becoming the first country in the world to adopt bitcoin as legal tender. Nevertheless, The government of Nayib Bukele is now facing intense scrutiny for the lack of transparency in its economic policies around this cryptocurrency. Another thing to highlight here is the Venezuelan Petro. This is the first cryptocurrency issued by a government and backed by natural resources. That being said, certain analysts do not believe that this currency has played a fundamental role in the country's economy..

However, one thing that experts agree on is that we are currently experiencing a “crypto winter”, where the entire digital financial ecosystem is affected. This means that this crisis will probably pass and the crypto phenomenon will grow again, but most likely with different rules. According to Luis J. Canessa, the Argentinian management planner for the Chivo Maker Association, "almost all financial institutions and large companies of various descriptions now have people who are effectively evaluating the crypto ecosystem for entry into it." Chivo Maker is made up of people and companies that are "convinced of the transformation of the world with solutions that revolve around bitcoin," he adds.

Canessa, who also participated in Bukele's project, believes that the advent of cryptocurrencies is a significant paradigm shift in the global financial industry, as this technology is "quite revolutionary." Without a doubt, this has sparked a debate between the traditional model and the crypto technology itself. “Even though this is not the same thing,” he draws comparisons to the tensions between Uber and traditional taxis. That is, "what happened traditionally versus the new technological innovations that cause change." He maintains that this phenomenon is normal, given that "every time a disruptive solution appears on the market, someone is going to get upset about this disruption."

Salvadoran The economic journalist Mariana Belloso agrees that these times of crisis are temporary and that we will see a "step towards tradition" in the future. In other words, towards the use of cryptocurrencies issued and controlled by central banks. For her, the main problem is not so much technology, but the greed of those who want to make easy money and take advantage of others. She explained that this lack of control has led to business decisions being made by young professionals who often do not have much experience in administration or finance..

Challenges in its adoption in the region

Global Financial Integrity (GFI) also explains that there are two major issues surrounding the adoption of such cryptocurrencies in Latin America. The first of which is people's limited understanding of this matter. On a scale of 0 to 5 (where 5 is the most knowledge) they obtained a score of 2.08..

The other problem is the inability of governments to prevent, detect, investigate or prosecute the economic crimes that may arise from the adoption of these crypto assets and other future technologies. According to a GFI analysis, cryptocurrencies have been used to commit crimes, including fraud, scams, ransomware, and extortion. The Economist he agrees, stating that there are "many money launderers, sanctions evaders and fraudsters" involved in these digital transactions.

GFI is of the opinion that crypto assets are here to stay, but need to be regulated to provide safety and protection for both users and investors. Among other such actions, it recommends that measures be put in place to better understand the crypto ecosystem within each country. These include: developing regulations to ensure clarity and predictability, fostering education on the matter, and exchanging information between different sectors of society..

However, regulation is perhaps the biggest dilemma facing cryptocurrencies like bitcoin. According to Argentine researcher Julio César Marchione and a team of colleagues, this is the first to be fully decentralized, open, and unregulated for peer-to-peer transactions. The researchers point out that decentralization is its very foundation, which in turn means "not having any limitations on its use" or requiring any authorization. Although these researchers highlight that it is the most representative of the cryptocurrency ecosystem, it is not the only one. There are around 8,000 more, which despite their specific characteristics, share this same principle..

It is true that we are facing a technological financial resource, which has generated significant economic losses and many headaches due to its continuous failures that generate many doubts. However, as experts point out, the picture is not entirely bleak, nor are cryptocurrencies about to disappear. It is now up to governments to find procedures that ensure the safety of investments and investors must also learn how to better manage their digital currencies..