Cryptocurrencies in Latin America: 2024 the year of consolidation
What about the Latin American market? 2024 could be considered the year of consolidation and mass adoption of cryptocurrencies. Bitcoin's rising price and the region's political landscape may be very helpful for digital currencies.
The adoption of digital currencies in Latin American countries is starting to increase, and recent surveys (such as Coinmarketcap's) indicate that the adoption of Bitcoin (and more crypto) will continue to increase.
As of June 2023 (according to Chainalysis data) Latin America accounted for 7% of the total value of the cryptocurrency market, a very high amount considering the economic situation of several countries in the area. Ahead of only Sub-Saharan Africa, but not far behind MENA, Eastern Asia, and Eastern Europe. Its position compared to other regions has held relatively steady over the last two years.
In addition, the strong presence of financial and cryptocurrency companies in the region have ensured that the ecosystem in the area remains strong.
These are the main prospects for cryptocurrencies in Latin America.
Signs of Crypto's historic recovery in LATAM
The last few years have been particularly turbulent for the cryptocurrency sector, especially due to the scandals involving two of its most prominent figures. On the one hand, FTX founder Sam Bankman-Fried was convicted of fraud and money laundering, and is currently in prison awaiting sentencing. On the other hand, Changpeng Zhao (CZ), the CEO of Binance, admitted his guilt in similar offenses in the United States and resigned from his position, pending a sentence that could be handed down in February 2024.
After suffering two significant blows in such a short interval, it would not be unreasonable to assume that the cryptocurrency world is going through a critical phase, especially with the growing skepticism among its users. A clear example of this is the wave of capital withdrawals from Binance, which reached almost $1 billion shortly after CZ's resignation. However, there are signs suggesting that 2024 could see a positive trend in the crypto market, especially in Latin America.
The first reason for optimism in the world of cryptocurrencies lies in their time cycle: they are currently in the midst of a bear market that has lasted for more than 500 days, arguably the longest period in Bitcoin's history. This duration suggests that the previous base price of $16,500 to $17,000 is now in the past, and there is no indication, either fundamentally or technically, that a correction of similar magnitude is approaching.
The historical price of Bitcoin has marked increases and decreases gradually, but the data shown by websites such as Investopedia mention that these trends are likely to lengthen.
Bitcoin looks set to close around USD 40,000, so we are seeing clearer signs of a recovery, being closer to USD 60,000 than last year's low.
The second key factor is short-term and relates to the expectation of the approval of exchange-traded funds (ETFs). These funds would allow for a greater injection of capital into Bitcoin, something that has already been anticipated by US multinational Blackrock with an announcement of investment of more than $15 billion in Bitcoin over the next few years. This investment promises to increase demand and is therefore expected to have a positive impact on the price in the short term.
Finally, a crucial factor in the evolution of cryptocurrencies is the regulatory intervention of entities such as the International Monetary Fund (IMF) and the World Bank. These institutions have urged more than 75 countries (many in Latin America) to start regulating services linked to blockchain technology. This regulatory trend points to 2024 ushering in an era where large investors, both from Wall Street and emerging markets, will have a more defined and rigorous regulatory framework. This scenario is likely to attract the interest of new players in the cryptocurrency field, opening doors to more investment and growth opportunities in the sector.
The political landscape in Latin America: cryptocurrencies will be a major player
2023 was very important due to the victory of Javier Milei in Argentina, who has cryptocurrencies as a major player in the Argentine economy.
2024 will be a year full of popular elections, and there are some decisive countries for the adoption of cryptocurrencies in the area. This is a brief overview of them:
- February 4, El Salvador: Bukele was the first president to support the full adoption of cryptocurrencies as a national currency. He will now face his re-election process, which although it seems he will have no problem winning, the outcome may be important for digital currencies.
- May 5, Panama: Panama's economy is in trouble due to the copper deficit, so the use of Bitcoin and cryptocurrencies will be a topic of conversation in the campaigns.
- June 2, Mexico: neither Claudia Sheinbaum nor Xochitl Gálvez have spoken out on cryptocurrencies, but the two presidential candidates will have to take sides, especially since the Mexican market is one of the most important for the mass adoption of currencies.
Additionally, the November elections in the United States may change the entire outlook for digital currencies, especially as the congressional wars continue.
As for Brazil, who recently elected president, it started with a giant step towards the regulation of cryptocurrencies, being one of the most important markets for digital currencies.
The Central Bank of Brazil recently launched, on Thursday night, its long-awaited public consultation on the regulation of cryptocurrencies.
This consultation invites citizen participation to answer 38 thorough questions, covering eight key areas of regulation. Among the most significant topics is the complex issue of asset segregation. However, the consultation also includes other questions on less controversial aspects, such as data security, cryptographic key management, asset custody, transactional procedures and the safeguarding of vested rights, among others.
The Central Bank of Brazil (CB) will use the responses obtained in this consultation to prepare a draft regulation, which will be submitted to a second round of public consultation in mid-2024. The final version of the regulation will be implemented after this second consultation.
Numerous experts have praised the methodology adopted by the CB, highlighting that both the questions posed and the way in which the process is being developed are evidence of the bank's commitment to meticulous and well-founded work. It is important to mention that this is the first time that the CB has carried out a public consultation in questionnaire format of this nature; generally, the procedure consists of publishing a draft regulation and then inviting the public to submit comments and observations.
Bitcoin's major hegemony in Latin America returns
Bitcoin has not ceased to be the largest cryptocurrency on the market, but with its sudden drop in prices, users were leaning on alternative currencies to further diversify their portfolio.
Digital asset selection has experienced a shift towards higher quality options, resulting in a sustained increase in bitcoin dominance, surpassing 50% for the first time since April 2021. This phenomenon has been largely driven by the participation of well-known traditional financial players that have applied for bitcoin spot ETFs in the United States.
Their presence in the crypto space has helped validate and strengthen the image of cryptocurrencies as an emerging asset class. While the coming year may see a rotation of capital into riskier segments of this asset class, institutional flows are expected to remain focused on bitcoin at least through the first half of 2024. Also, pent-up demand from traditional investors interested in entering the crypto market will likely make it difficult to displace bitcoin's dominant position in the near term.
All this phenomenon is happening in Latin America, so we can see how Bitcoin can increase its percentage of dominance in countries such as Mexico, Argentina, Colombia or Chile.
Bitcoin's unique narrative has been a key factor in its outperformance of traditional assets during the second half of 2023, and this trend is expected to continue in the year ahead. Unless a general risk-averse environment emerges that drives strong demand for liquidity (such as the political cases we mentioned), Bitcoin is projected to maintain positive performance, even in the face of a more complicated macroeconomic scenario.
Factors such as fiscal policies in the U.S., elections in Latin America and other countries could restrain tighter monetary policies, which in turn could benefit Bitcoin. In addition, perceived vulnerability in the U.S. commercial real estate sector could put additional pressure on the country's regional banks. These circumstances could accelerate the secular trend toward Bitcoin adoption as an alternative to the traditional financial system. These developments, taken together, could reinforce the narrative around Bitcoin's disinflationary supply schedule, especially with the anticipated halving in April 2024.
The dollar as a secondary currency in Latin America - next road to de-dollarization?
De-dollarization could continue to be a recurring theme in 2024, particularly as it is an election year. Despite this, the US dollar (USD) faces no imminent threat to its global dominance or its "exorbitant privilege", as former French President Valery Giscard d'Estaing called it. However, it is clear that the USD is at a turning point. Although the process of de-dollarization could take several generations, the global monetary system is already beginning a gradual shift away from a dollar-centric approach.
This is due, in part, to growing macroeconomic imbalances in the United States, where the cost of servicing the national debt, according to the Congressional Budget Office (CBO), is expected to reach $1 trillion or 3.1% of GDP by 2028. In addition, the federal deficit is projected to increase from 3.5% of GDP to 6.1% over the next decade.
On the other hand, the debate over de-dollarization is not new, having been discussed since the early 1980s. Despite this, the dollar remains the world's main reserve currency, with a share of international transactions that has fluctuated between 85% and 90% over the last four decades. What has changed is the increasing militarization of global finance, especially since the increase in U.S. sanctions on Russia due to the war in Ukraine. This context has driven greater interest in the development of new cross-border payment solutions, with more countries signing bilateral agreements to reduce their dependence on the dollar.
For example, both France and Brazil have started to conduct commodity trade transactions in Chinese RMB. In addition, more trials of central bank digital currencies are being explored to circumvent the current complex correspondent banking system.
In Latin America, the dollar is the second largest currency in circulation and an important part of the local economy.
Is de-dollarization possible? It can be quite complicated, but what is certain is that the weakness of the currency has forced many people to take cryptocurrencies into account in order not to lose part of their income.
For this reason, the growth of remittances in cryptocurrencies has been constant and in 2024 it will have an important boom, because many companies are beginning to offer this type of services with total confidence and security, such as TruBit.
Brazil, Argentina and Mexico: the pillars for adoption in LATAM
According to Bloomberg, of the 20 countries that have adopted cryptocurrencies the most, 3 are in Latin America: Mexico, Argentina and Brazil. These countries are above even countries with better economies such as the United Kingdom, Japan, Canada or Morocco.
If all the studies on progress in 2024 are accurate, it is possible that we will also find countries such as Colombia, Chile and even Peru. The political situation and the regulation that cryptocurrencies can obtain will be of great help for LATAM to be the region of adoption.
There is remarkable diversity in the way cryptocurrencies are used in different Latin American countries. Take a look at the following heat map, which presents a comparison between the main countries in the region in terms of cryptocurrencies, highlighting their preferred platforms.
Most of the countries represented in the study show a preference for centralized exchanges in terms of the volume of cryptocurrency transactions, exceeding the global average. In Venezuela, for example, an impressive 92.5% of all crypto-related activities are conducted through these exchanges.
Mexico, on the other hand, stands out as an exception: the distribution of its platforms aligns more closely with the global average, with almost half of its total volume handled through decentralized exchanges (DEX). This fact could explain why Mexico has a higher proportion of buying activity focused on altcoins, given that DEXs tend to offer a wider range of assets compared to their centralized counterparts.
The overall outlook for Latin America is good, especially given the increase in cryptocurrency adoption during the calendar year. Additionally, the increase in Altcoins also shows that the diversification of Latin Americans' portfolios has served to make education about the crypto world work better.
- Cryptocurrencies in Latin America: 2024 the year of consolidation
- Signs of Crypto's historic recovery in LATAM
- The political landscape in Latin America: cryptocurrencies will be a major player
- Bitcoin's major hegemony in Latin America returns
- The dollar as a secondary currency in Latin America - next road to de-dollarization?
- Brazil, Argentina and Mexico: the pillars for adoption in LATAM