Many Latin American companies have adopted the use of cryptocurrencies to bypass the complex banking system
Chainalysis, a blockchain analytics firm based in New York, published new research that revealed there have been around 200,000 crypto transactions in the past year that have amounted to more than $1 billion between Latin America and Asia.
The study, entitled Latin America Migrates Economic Turbulence With Cryptocurrency, looked at trends in cryptocurrency transactions within Latin America from July 2019 to June 2020. It found that the use of cryptocurrency is driven by issues regarding access to banking as well as the need for remittances, particularly in cross-border commercial-related transactions.
It also found that while Western Europe and North America make up the biggest source of fiat remittances to Latin America, it is East Asia that constitutes the highest volume of crypto transactions. Many of these payments are commercial transactions between exporters located in Asia and companies in Latin America.
The Head of Research at Chainalysis, Kim Grauer, explained that the researchers were not able to find one overarching driving factor behind this phenomenon because each country in the region has unique motivations, with different systems for politics and banking.
However, they were able to pinpoint several highlights, such as that “the use of P2P exchanges is a key service for adoption in Venezuela, a large professional market drives adoption in Brazil, and a substantial commercial market drives adoption among Argentina, Paraguay, and Brazil as they trade goods, often imported from China”.
Luis Pomata, co-founder of the Paraguay-based crypto exchange Cripex, explained that the situation between banks in Paraguay and businesses has discouraged companies from filing banking applications, which stems from concerns about money laundering on the bank’s end. As a result, financial institutions are picky with who they choose to work with as a result.
“It’s not just businesses in Latin America having problems with banks. Many individuals are also unable to get bank accounts, which is another factor driving cryptocurrency adoption,” the report reads.
It also explains that many young people prefer to use cryptocurrency as a means of storing value without easy banking access.
In July of this year, Bitso, one of the biggest crypto exchanges in the Latin American region, hit the one million user mark prior to its launch in Brazil. The exchange’s success in Argentina was made possible due to significant crypto activity and a high demand for cross-border payments in the local market.