Developing Countries: A Proven Use Case for Cryptocurrencies | 02/01/23

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Some people see cryptocurrencies solely as an investment opportunity. A very volatile asset class that carries risks. However, this view is somewhat naive because it ignores one of the most important use cases for cryptocurrencies: financial freedom. The concept of financial freedom is hard to actively feel for the privileged among us living in Europe or the United States – despite record inflation, we are not financially oppressed. We can rest assured that our savings will still be intact next year. In developing countries like Brazil, Mexico or Turkey, which face political stability, large currency devaluations and depleting their savings every year, financial freedom is just a wish. pious. In response, these citizens are turning to cryptocurrencies, and especially stablecoins, to preserve their wealth. The Brazilian real has depreciated by more than 200% Over the past 10 years, the Brazilian real (BRL) has depreciated by more than 200% against the US dollar, depleting Brazilians’ savings in their local currency . Additionally, the Brazilian government has imposed capital controls on foreign currencies and only Brazilian reals can be held in Brazilian bank accounts. This has left many Brazilians desperate for an alternative to their national currency, ideally pegged to the US dollar to protect their savings. Stablecoins offer exactly that, allowing Brazilians to participate in global markets and link their savings directly to the US dollar – an opportunity that should not be taken lightly. Brazilian savings have continued to suffer this year, with the Brazilian stock market falling 15% since Luiz Inacio Lula da Silva’s victory in the October presidential election, while the Brazilian currency fell another 7% in course of the past year. Via exchanges like Binance and Bitso, Brazilians have flocked to trade BRL pairs in exchange for stablecoins. Source: Kaiko Research A staggering 50% of volume in BRL pairs is in a stablecoin, compared to just 5% of volume in USD-denominated pairs. Since the 2021 bull run, USDT has increased its share of total BRL volume by nearly 20% at the expense of altcoins, suggesting that people are choosing stablecoin safety over altcoin speculation. While a similar decline in altcoin trading is seen on USD-denominated pairs, the need for stablecoins as a safe haven is much less due to the presence of the greenback as crypto investors in the US choose bitcoin rather than stablecoins for security reasons. BTC and ETH account for 72% of trading volume on USD pairs, compared to just 34% on BRL pairs. Market data only shows the breakdown of transactions in the different local currencies without revealing the nationality of the trader. However, a recent report from Chainalysis reveals that Brazil has one of the highest crypto adoptions in the world: around 41% of adults own some form of cryptocurrency. The same report shows the difference in attitude between Brazilians and the US, with the majority of respondents in Brazil (66%) saying cryptocurrencies are the future of money, compared to just 23% in the US. United. This survey data confirms the trends we see in crypto market data, especially when it comes to stablecoins. Year-to-date, BRL-denominated volume has held up better than the broader market, down 44% year-to-date, compared to a 65% drop in USD-denominated volume. Turkey battles extreme inflation Like Brazil, Turkey’s currency has depreciated sharply in recent years as the country battles record inflation. Official figures released in September put annual inflation in Turkey at 80%. Meanwhile, unofficial measures suggest that real inflation hit 140% in April. Turkey has pursued what some economists have called a gigantic economic experiment: the Turkish president is a notorious opponent of high interest rates and insists on maintaining one of the lowest real interest rates in the world. As a result, inflation soared. As counterintuitive as it may seem, Turkish citizens are therefore turning to cryptocurrencies to escape the volatility of the lira. Investing in bitcoin in January 2021 would have given Turkish citizens a 19% gain if quoted in their local pound, compared to a 53% loss for the US dollar and Brazilian real. Examining data from the most popular Turkish exchanges, Binance and BTCTurk, shows that safe haven trading is almost as prioritized as trading BRL-denominated pairs. The trading volume of stablecoins in lira represents 40% of the volume compared to 50% with the BRL. The most notable trend in market share distribution for crypto investors in Turkey is the increasing dominance of USDT since the pound was heavily devalued in 2021. Tether’s share of Turkish volume on Binance and BTCTurk went from 10% at the beginning of 2021 and even to 30% last month. Investors fled the lira and sought protection in a dollar pegged asset like USDT. The other notable trend in Turkish volumes is that Turks seem to be much more willing to use crypto as a gateway to investing in smaller-cap assets, as indicated by the “Other” volume share (48%). Unlike the stock market or other investment vehicles, crypto democratizes the investment process at an early stage, and crypto investors can participate in much of the early gains reserved exclusively for mutual funds in the world. traditional financial world. Turkish citizens are obviously using cryptocurrencies to try to partake in a new way of accumulating wealth. This has never been clearer than with the recent AI craze that has made the rounds thanks to ChatGPT. A cryptocurrency-based AI project called fetch.ai (FET) accounted for 63% of daily volume on BTCTurk two weeks ago as Turkish investors rushed to participate in the latest investment craze. Currency depreciation protection appears to be a growing use case for cryptocurrencies in Brazil and Turkey, with Turkish investors also showing a propensity to jump on the latest trends. Increased use of crypto in Mexico Mexico is the second largest recipient of remittances in the world, according to a 2021 statistic. Crypto companies are starting to see the opportunity to use blockchains to be more profitable than traditional payment systems, thereby offering lower fees to their customers. Transfer fees can reach 12%. The Mexican remittance market was worth $51 billion in 2021 alone. Bitso announced that in the first five months of 2022 it had already processed $1 billion in transfers between Mexico and the United States . This amount represents 400% growth for Bitso over the same period in 2021. They hope to process $2 billion in remittances this year, representing a 4% share of the total Mexican remittance market. XRP is a crypto asset that already enables large-scale remittance payments. Crypto companies like Bitso are using the capabilities of XRP to gain a bigger share of the remittance market in Mexico. Since the start of 2022, XRP has improved its trading market share against BTC and ETH on Bitso from 36% in volume to 77% in volume against the two flagship cryptocurrency assets. Use cases for critics Cryptocurrencies are accused of being a self-serving circular economy based on speculation and failing to solve real-world problems. In a bear market, these voices become louder and real cryptocurrency use cases take center stage. However, what critics don’t recognize or may not even know is that cryptocurrencies are not one of the most important financial tools in the United States or Europe, but in countries such as Brazil, Mexico and Turkey. While cryptocurrencies have a reputation for being a volatile asset in our economies, many countries in Latin America and Eastern Europe consider cryptocurrencies, and in particular dollar-pegged stablecoins American, as a way to escape instability in their home country. For these people, cryptocurrencies offer a way out of depreciating wealth.