Two experts lay out how bitcoin is changing emerging-market finance.
Cryptocurrencies have made it into the mainstream this year, with crypto-backed bank cards, investment products and traders, both big and small, have got in on the action, driving the likes of bitcoin, ether and dogecoin to record highs.
In the developing world, crypto adoption is growing at breakneck speed. Young, fast-growing populations that lack access to traditional finance, but have smartphones, from Brazil to Botswana, are driving the surge in the use of cryptocurrencies.
James Butterfill, who is an investment strategist at CoinShares, the largest crypto exchange traded product provider in Europe, and Marius Reitz, the general manager in Africa of crypto exchange Luno discussed the social benefits of bitcoin for the developing world.
“In third-world countries, we are seeing the take-up of bitcoin. If you look at bitcoin volume growth, it’s massive,” Butterfill told Insider.
For example, according to a Statista survey of global consumers in February, nearly one in three of those polled in Nigeria said they owned, or used, cryptocurrencies, versus just 6 out of every 100 in the United States, in 2020.
El Salvador’s recent decision to make bitcoin legal tender is an example of how developing countries are using crypto. The World bank said it would not work with the country on its cryptocurrency plans because of how volatile it believes these assets are.
The amount of bitcoin that changes hands in emerging economies is exploding. Trading volumes in Brazil have risen 2,247% year-on-year in 2021, while in Venezuela, where political turmoil has created hyperinflation and economic crisis, crypto trading volumes have risen 833% in the last 12 months, according to data provider Kaiko.
In Nigeria, Africa’s largest economy, trading volumes have risen 128% year on year, and in Turkey, where inflation and economic decline have hit the lira, they’re up 143%, based on Kaiko’s data.
Bitcoin has been trading between $40,000 and $31,900 over the last month, but has moved between lows of $30,000 and to highs of as much as $63,500 over the course of 2021. Despite its volatility, consumers in developing countries love it.
There are about 1.7 billion people that are considered “unbanked”. However, around 48% of the global population has a smartphone and that percentage, in theory, have access to the internet, and therefore, cryptocurrencies, Butterfill said.
In Latin America, only 30% of the population over the age of 15 have a bank account, according to 2019 data by consultant Mckinsey.
“I think that really is a positive thing that bitcoin’s helping the unbanked be bankable,” Butterfill said.
A closer look at Africa
Crypto use has also grown in Ghana, Kenya, South Africa, Botswana and Zimbabwe.
“One region that may go unnoticed in the development and usage of cryptocurrencies, is Africa. The continent is one of, if not the most promising, regions for the adoption of cryptocurrencies due to its unique combination of economic and demographic trends,” Luno’s Reitz said.
One of the key factors that is encouraging people in Africa to use cryptocurrency is the cost of transferring money. The World Bank reported in 2020 that sending money to Africa via traditional bank transfer cost an average fee of 8.9% compared to the global average of 6.8%.
Sending money abroad, or even receiving funds from overseas, is littered with additional costs, including exchange rates and this is where crypto is helping fill that gap.
“It’s either really expensive, or really difficult to do. So, with something like bitcoin, you can have an international bank account and it costs you virtually nothing, that’s what’s really powerful about it,” CoinShares’ Butterfill said.