Bitcoin in Emerging Markets: Latin America

In advance of her “Crypto Across Emerging Markets” panel at Consensus: Distributed on May 11, Leigh Cuen is writing a three-part column on how cryptocurrencies are used in the developing world. The first installment explored bitcoin adoption in the Middle East and the second covered Africa.

Some believe the broader economic crisis might lead to “dollarization” in emerging markets, where people increasingly use global currencies like dollars instead of their local fiat. 

It remains unclear how bitcoin will play into that prospective shift, as bitcoin is still too immature to be predominately used as a competing currency. But crypto entrepreneurs are still giving it a try anyway.

The Colombia-based startup Valiu offers Latin Americans access to remittances and bitcoin-backed, synthetic dollar savings accounts. This means you can send fiat across borders and, when you’re not cashing out, the value is denominated in dollars by behind-the-scenes bitcoin derivatives. 

Register: Leigh Cuen Hosts “Crypto Across Emerging Markets” on May 11 at Consensus: Distributed

When the startup partnered with the Open Money Initiative for market research, it found demand from members of the Venezuelan diaspora for fiat remittances and dollar-denominated savings spurred by Venezuela’s pre-coronavirus economic collapse. 

“We have a trading and risk engine where we buy and sell bitcoin, that’s how we provide the service,” Valiu CEO Simon Chamorro said.

Users can pay in debt, credit or even cash to get into the system, Chamorro added. Bitcoin is then used to transfer value on the backend. “It was an incomplete solution to offer [pesos-to-bolivar] remittances because as soon as they received the money, they had to spend it,” he said. “We knew we needed a dollar solution.”

So far, in 2020, the Valiu mobile app garnered 40,000 downloads and roughly 5,000 monthly active users. Chamorro said there’s also growing demand from Mexico and Argentina because, like Venezuela and Colombia, these nations are experiencing high inflation and are home to many migrant communities. 

Indeed, researcher Matt Ahlborg wrote LocalBitcoins users in Argentina set new record highs this week with more than $105,000 in daily volume on LocalBitcoins. 

Meanwhile, dollar-denominated stablecoins offer another type of dollarization. Argentinian crypto exchange founder Federico Ogue, CEO of Buenbit and Buendolar, said many users who are buying cryptocurrency for the first time are attracted to dollar-denominated stablecoins, like dai. This is also thanks, in part, to active marketing campaigns supported by the Maker Foundation. 

These new clients tend to buy small amounts, Ogue said. Even so, he said there were so many new users during the lockdown that volumes nearly doubled on the peak day in April. 

With regards to bitcoin, Ahlborg’s tally of volumes from both Paxful and LocalBitcoins show peer-to-peer trading volumes in Argentina may be growing at a slower rate than other Latin American crypto hubs like Venezuela or Colombia. So far, it appears MakerDAO may be the most widely promoted altcoin project in both Argentina and Brazil. Over in Brazil, the Stellar-based Moeda Marketplace spun up a food market during the coronavirus crisis. 

The startup works with agricultural companies like Agro Organic to offer 80 different food products with a two-day delivery time. In the first few weeks of operation, the startup earned $20,000, serving 300 customers. Next, the plan is to expand to several major cities in Brazil.

Unlike Venezuela and Argentina, which were already embroiled in an economic crisis, Brazil’s economy was relatively stable before the coronavirus hit. 

As such, crypto adoption has been much lower in Brazil despite its size. The local stock market provided sufficient investment opportunities for traders, without needing to look abroad. Plus, Binance’s Brazil communications lead, Mayra Siqueira, said bitcoin has a reputation problem in her homeland. Before the pandemic, people overwhelmingly associated cryptocurrency with scams and quick riches. 

Siqueira said there are roughly 60 crypto exchanges operating in Brazil, out of which the leading exchange has only opened 1.5 million accounts to date. But awareness is growing, Siqueira said, with Binance onboarding 16% more Brazilian users in Q1 2020 than in Q4 2019.   

Now that Brazilian President Jair Bolsonaro is leaning toward “authoritarian” tendencies, she said, more people are looking to bitcoin as a long-term savings option or a way to transact across borders.

“There’s a fear that we might be becoming a dictatorship again,” Siqueira said, referencing the military regime that gripped Brazil for two decades until 1985. “We’re not seeing international investment coming to Brazil any time soon because we’re politically unstable. We’re going to see more crypto adoption because of that.”

In some ways, Moeda is an example of that. The token project leverages global platforms like Binance for small loans and operational liquidity while serving local clients in Brazil.  

Rosine Kadamani, founder of the educational Blockchain Academy in Brazil, described Moeda as Brazil’s first “true initial coin offering” back in 2017. Since then, the startup has worked with small businesses in ways that “represent an interesting gain for all the involved.” 

Critics might argue Moeda doesn’t need a token to serve these Brazilian businesses. Regardless, the company appears to be performing like other comparable tech providers in the region. Plus, Moeda CEO Miss Reis was already working with agricultural cooperatives for years before the crisis hit. 

Unlike dai adoption, which is promoted by the Maker Foundation, the Stellar Foundation is not affiliated with Moeda in any way. As such, the Brazilian case illustrates that crypto usage in “emerging markets” isn’t uniform at all.

Although some Brazilians have already lost their life savings in ill-advised crypto investments, Siqueira said, that doesn’t mean altcoin projects in emerging markets are inherently exploitative or artificial. 

Sometimes inflation drives crypto adoption, especially when paired with weak banking infrastructure. But Siqueira said Brazilians trust banks more than they do in Argentina, for example. In this case, it’s not that bitcoin users generally distrust local banks. Instead, there’s simply higher demand for accessible and transparent loan services than there is local supply.  

So some entrepreneurs take initiative on their own and use altcoins to find international lenders or investors interested in small-to-medium scale opportunities. Digital payments, in general, make it cheaper and easier to transact across borders. So a modest profit can be more attractive to lenders and investors abroad. Someday traditional institutions may be more accessible. As of today, cryptocurrency provides a workaround.

Jorge Farias, a Venezuelan expat and CEO of the Panama-based startup Cryptobuyer, said this year his company plans to establish 20,000 crypto-friendly point-of-sale devices across Venezuela. This bitcoin business also supports altcoins like ether and dai, because it’s profitable for Cryptobuyer to do so. Other bitcoin companies are interested in supporting tokens as well. 

“We’re not closing the door on stablecoins. We can also use them as collateral,” Chamorro said of trendy altcoins like dai.

As for Chamorro’s case in Colombia, he said his startup’s $1.25 million raise from Y Combinator in San Francisco went a lot further than it might for competitors because most of his staff lives in Latin America. Across the board, all parties agreed access to education is the crucial factor that enables adoption, not scams. 

“Brazil requires more education,” Binance’s Siqueria said. “As soon as we see a better fiat offering in Brazil, we’ll see a lot of growth.”