Inflation And The Main Motivater High Interest Rate Of Cryptonization In Latin America

Fabr Likecio Tota, Director at Mercado Bitcoin. (photo: twitter @ftota )

JAKARTA - Inflation, cross-border payment, asset tokenization, and nonfungible tokens (NFT) are one of the main drivers of crypto adoption across Latin America in 2022. There are even some examples of interesting progress in many countries.

Latin America generated 9.1% of the global crypto value received in 2022, reaching US$562 billion (Rp8,773 trillion) between July 2021 and June 2022. This represents 40% growth in that period. Four Latin American countries were ranked among the top crypto adopters in the latest Chainalysis Global Adoption Index.

Large developments have contributed to these results over the past 12 months. Authorities have been working on central bank digital currencies (CBDCs), applying standards for business operations, and clarifying regulations.

Meanwhile, many companies in Latin America have explored ways to leverage blockchain technology and digital assets to solve the challenges facing countries in the region.

"This region is full of opportunities for cryptocurrency adoption," said a spokesman for cryptocurrency exchange Bitso, which operates in Brazil and Argentina, among other countries in Central America.

For Argentina and Colombia, the impact of inflation has prompted many people to use cryptocurrencies. For Colombia, remittances are a significant driver of adoption, even surpassing coal as a driver of dollar revenue by 2022 according to the Banco de Report of Bogota," he was quoted as saying by Cointelegraph.

Crypto Latam

The institutional adoption and development of regulations have paved the way for Mercado Bitcoin to issue Brazil's first stablecoin, MBRL, backed by a one-to-one comparison by Brazilian fiat currencies through partnerships with Stellar.

The country's central bank scheduled its digital currency testing in 2023, and for 2024, its full rollout to more than 200 million people. In addition, the recently approved bill will regulate virtual asset providers after years of discussion at Congress.

"Brazil has become a major player in the crypto economy story in Latin America for several reasons: institutional adoption, regulatory progress, and public support in general. In this case, the involvement of the public sector is inevitable - this is a very positive step, which is increasing the crypto-active industry while providing greater security for investors," said Fabr

Colombia also plans to introduce its digital currency, which aims to increase transparency and prevent tax evasion, which is estimated to reach nearly 8% of the country's gross domestic product. In Chile, the central bank has postponed plans for the issuance of digital Chilean pesos for deeper analysis of the benefits and risks.

To counter inflation in Argentina, cities like Buenos Aires and Mendonza are starting to receive cryptocurrencies for tax payments. At the same time, Santa Fe Province plans to implement crypto mining activities to raise funds for improved rail infrastructure. This may be a timely initiative given Argentina's inflation rate is expected to be 73.5% by the end of 2022, according to the Focus Economics panelist.

"Argentine is at the center to bring technology development and resources to Latin America from around the world," said Ryan Dennis, senior manager at the Stellar Development Foundation. This naturally flows into blockchain development with a large number of startups in the country and thus more and more developers and founders working together on blockchain and crypto.

Tokenization

Crypto Latam space also benefits from the tokenization of investment products, which allows many to access products that were previously only available to large investors. "Digital asset tokenizations have grown over the past few years, including assets such as corporate bonds and real estate debt," said Dennis.

Another reason that contributes to the emergence of financial asset tokenizations is the high interest rate in the region. Most Latin American countries have double-digit interest rates, prompting investors to look for assets with predictable returns and lower volatility. This is an ideal scenario for financial companies working on decentralized tokenization and finance solutions (DeFi).

Tokenization of music and art is also a trend in Latin America. "One of the revolutions that took place in Lat Am is to give window artists to Web3," said Dennis. "There are many artists who are able to get out of their local communities and countries to become known internationally. That's amazing."

The challenges of the crypto industry in this region are similar to those seen around the world, namely the lack of education about blockchain technology, inadequate regulation, and lack of trust. Companies and projects that will lead crypto in Latin America next year will become companies that are seriously addressing the need for increased transparency and trust, said a Bitso spokesperson.