In June 2021, the government of El Salvador passed a historic bill that would allow the country to adopt Bitcoin as legal tender. By September, it will be the first country in the world where anyone can walk into any shop or bank and spend their BTC as if it were cash.
It could turn out to have been a risky move, given that the International Monetary Fund has warned other countries against following suit. Nevertheless, a swathe of news headlines has emerged from the region over recent months, indicating a growing enthusiasm for Bitcoin and digital currencies among Latin Americans. What are the most recent developments, and what’s driving the appetite?
El Salvador Starts a Trend?
Following the news that El Salvador was planning to make BTC legal tender, several other countries now appear to be gearing up to embrace cryptocurrencies, albeit in different ways. In early June, immediately after the El Salvador news broke, Paraguayan Congressman Carlos Rejala proposed a new bill designed to attract mining companies and other digital asset enterprises.
Panama was the next in line, with Congressman Gabriel Silva announcing via Twitter that he had found El Salvador’s initiative “positive, ambitious, and interesting.” He confirmed he was planning to launch a consultation process with a view to debating the position of cryptocurrencies in the Panamanian economy in the nation’s parliament.
More recently, news emerged from Uruguay and Colombia that senators had proposed more crypto-friendly regulations. In Uruguay, Juan Satori introduced a bill to allow merchants to accept crypto payments, while in Columbia, Mauricio Toro is proposing to regulate cryptocurrency exchanges, paving the way for legal operations. Furthermore, in a recent interview with Crypto Potato, the advisor to the Colombian president stated his view that Bitcoin was the most “brilliant piece of software.” The President of Argentina has also recently indicated his willingness to adopt Bitcoin as legal tender.
What’s Behind the Enthusiasm?
Why are cryptocurrencies proving to be so popular in Latin America? There is a multitude of reasons. One of the recurring themes throughout the most recent set of headlines is around mining. Until earlier this year, China was the undisputed global mining hub for miners, thanks to low energy prices and real estate costs. However, since the Chinese government placed a ban on cryptocurrency mining in mid-2021, miners have been seeking new locations to set up shop. Becoming attractive to mining entities was a reason cited for more crypto-friendly legislation in Paraguay. Representatives from other nations remained more tight-lipped about the exact proposals, but it seems likely that mining could be a lucrative opportunity.
There’s also the fact that cryptocurrencies are currently gaining significant interest from around the region, even before the current wave of regulatory news. In July, Brazilian exchange Mercado Bitcoin became Brazil’s first cryptocurrency unicorn after raising $200 million from Softbank America Fund. Valued at $2.1 billion, the company is the eighth-most valuable unicorn in Latin America.
IOV Labs is also a Latin American company based in Buenos Aires and operator of the RSK platform, a smart contract-enabled sidechain of the Bitcoin blockchain. In 2019, IOV Labs acquired Taringa!, a Latin American social media network with 30 million users. It’s since been working to integrate blockchain and cryptocurrency features into the network’s functionality.
A Rush to Adopt
With all this going on, it should hardly be surprising that Latin American countries are now some of the highest-ranking in the world regarding cryptocurrency adoption. According to the 2021 Global Crypto Adoption Index published by Chainalysis, Venezuela comes out top, with Argentina, Colombia, and Brazil all ranking in the top twenty. The overall results, though, show a more significant trend.
Overwhelmingly, developing countries, mostly with high levels of poverty and volatile national currencies, are the ones currently rushing to embrace cryptocurrencies. This is likely to be a significant factor in Latin America’s affinity with digital assets, given that countries including Venezuela, Brazil, and Argentina, all experience some of the highest inflation and most volatile fiat currencies in the world. Furthermore, governments often place sanctions on the movement of currencies, including US dollars, in and out of the country. As such, it’s hardly surprising that Bitcoin, stablecoins, and other assets, are proving to be so popular among citizens.
The Future Outlook
So, aside from the possible regulatory developments, what comes next? One of the first movers in cryptocurrency, Venezuela, looks set to further push digital currency adoption. In 2019, the country was the first to issue a digital currency in the form of the Petro dollar (PTR), which was first listed by exchange Cryptia, one of Skalex’s customers.
Most recently, the Venezuelan government announced it was planning to redenominate the national currency, the bolivar, by removing six zeros from it. It’s also promoting the use of the digital bolivar as a means of avoiding the kind of excessive money printing that comes with an inflationary national currency.
Cryptocurrency in Latin America is popular, and regulators seem more inclined to give it a chance than in other regions. In particular, Europe and the US seem more inclined to clamp down on cryptocurrency operators, at least based on recent news involving Binance and BlockFi. If things continue on the current trajectory, there’s every chance of LatAm becoming a global hub for digital asset activity in the future.