Bitcoin Could Be Latin America’s Ladder Out of COVID Chaos
Although back in
March, coronavirus seemed like a European problem, it was only a matter of time
before it started to wreak havoc across Latin America and North
America. At the time of writing, Brazil is second only to the US in terms
of case numbers, with Chile and Peru also in the top eight hardest-hit
countries globally. All countries will feel the inevitable
economic fallout from the virus, but many Latin American countries
were already in a difficult economic state before the
crisis hit. As of 2019, there were already 191 million people
living in poverty in the region. The OECD points out that in its
current economic situation, Latin America has less “fiscal
space” to mitigate the inevitable oncoming recession than it did in 2008,
before the global financial crisis. The IMF is now
predicting a bigger economic contraction in Latin America than any
other developing region. Compounding the situation even further, US
dollar-denominated debt was on the rise in 2019, up 3%. This is a
particular challenge for Latin American countries, many of which have
highly volatile national currencies. Recessions push inflation,
meaning that the value of national currencies is likely to
depreciate against the dollar. This will make it even harder for debts to
be repaid. For the average citizen in Latin America, it’s shaping up to
be a tough few years ahead. In a recent interview with the Financial
Times, the new vice-president of the World Bank for the region, Carlos
Felipe Jaramillo, stated he was “very worried about what [the economic
fallout of the virus] means for Latin America in terms of poverty,
poverty numbers, employment, incomes, and inequality, which has always been a
problem.” Later in the interview, Jaramillo points out the role that innovation
and entrepreneurship can play in helping to increase productivity, as a means of
bringing relief from the economic crisis. He cites the example of
Kenya’s M-Pesa money transfer system as an example of this in
action. I happen to agree with him — financial innovation is exactly the
tonic that Latin America needs to help it survive this crisis and thrive
beyond it. I came to this realization myself through my own discovery of
Bitcoin back in 2012. At that time, there were strict controls on the
transfer of capital, imposed by the government. These controls made it all but
impossible to transfer money in or out of Argentina. A friend living in Silicon
Valley told me to open an account and transferred some BTC to me. Twenty minutes
later, I sent it back, but he told me to keep one and play around with it. The
ease of that financial transaction, at a time when I couldn’t have
legally bought a single U.S. dollar if I’d wanted to, opened my eyes to
what an open financial system could look like. I decided to devote my
life to helping develop and spread the word about Bitcoin. In 2014, I
founded the Bitcoin Center in Buenos Aires. Today, we have ten countries
in the region with active Bitcoin communities and meetups. And it’s
working — people are starting to see the potential of
decentralized open finance. A survey last year by Statista showed
that, of the top seven countries to adopt cryptocurrencies, five are in
Latin America. Even though I’d like to think that this level of adoption
is all down to the efforts of us, early evangelists, the reality is that the
economic circumstances in Latin America make fertile ground for the
adoption of crypto. A significant part of the reason for Bitcoin’s
popularity is the factors mentioned above. Cryptocurrencies level the
financial playing field. Using Bitcoin doesn’t require you to go
to a bank, hand over your passport and undergo complex KYC checks and credit
ratings scores. Anyone with a smartphone can start using cryptocurrencies
within seconds, meaning it holds vast potential as an enabler of
financial inclusion. This is how Kenya’s M-Pesa system took off —
because it bypassed the need for a bank account, making it a viable option for
the unbanked and those in poverty. As the economic crisis bites on Latin
America, Bitcoin has the potential to do the same. Unlike M-Pesa,
which relies on national currencies, Bitcoin holds another
attraction for the people in Latin America. The value of the
Argentinian peso has fallen by 85% against the U.S. dollar in the last
five years — and that’s not unique within the region. With such a low
level of confidence in national currencies and purchasing power loss that
make Bitcoin volatility irrelevant, people prefer to convert their
funds to crypto. When the Argentinian government clamped down on
crypto last year, the people simply started using LocalBitcoins and other
peer to peer means of exchange. These days, using crypto doesn’t even
mean depending solely on Bitcoin as a store of wealth, given it has also shown
record volatility levels this year. Stablecoins are more available than ever
before and backed by a wide range of more stable currencies, including the U.S.
dollar and the euro. These foreign currencies would have been entirely
inaccessible to many citizens of Latin America a few years ago. Now they’re
available to buy in virtual form within seconds, using only a smartphone and
without going through any middleman. Decentralized finance is taking off
in a big way, and opening up even more opportunities for financial
inclusion for people in Latin America. Stablecoins pegged to the U.S. dollar and
backed by crypto allow holders to use their crypto as collateral
on loans, creating new avenues of lending for those who would otherwise be
ineligible for bank credit. If someone does have a store of wealth in crypto,
they can stake it and earn interest from those wishing to borrow. Blockchain is
also becoming more interoperable. Therefore, it seems reasonable to expect that
within a few years, decentralized finance applications running on Bitcoin and
other platforms will run together seamlessly, allowing a lender on one platform
to loan funds to a borrower on another. Tokenizing traditional assets, such as
commodities or even real estate, could finally bring true democratic access to
the broader financial markets. Due to the continuing challenge of the pandemic,
things seem bleak right now. The next few years will be some of the most
economically challenging in LATAM’s history. However, those of us in the crypto
space have an opportunity and a responsibility to use our knowledge, expertise
and influence to help use digital finance as a way of alleviating the situation
for the benefit of young and future generations. This article contains
links to third-party websites or other content for information purposes only
(“Third-Party Sites”). The Third-Party Sites are not under the control of
CoinMarketCap, and CoinMarketCap is not responsible for the
content of any Third-Party Site, including without limitation any link contained
in a Third-Party Site, or any changes or updates to a Third-Party Site.
CoinMarketCap is providing these links to you only as a convenience, and
the inclusion of any link does not imply endorsement, approval or recommendation
by CoinMarketCap of the site or any association with its operators. This
article is intended to be used and must be used for informational
purposes only. It is important to do your own research and analysis before
making any material decisions related to any of the products or services
described. This article is not intended as, and shall not be construed as,
financial advice. The views and opinions expressed in this article are the
author’s own and do not necessarily reflect those of CoinMarketCap.
Although back in
March, coronavirus seemed like a European problem, it was only a matter of time
before it started to wreak havoc across Latin America and North
America. At the time of writing, Brazil is second only to the US in terms
of case numbers, with Chile and Peru also in the top eight hardest-hit
countries globally. All countries will feel the inevitable
economic fallout from the virus, but many Latin American countries
were already in a difficult economic state before the
crisis hit. As of 2019, there were already 191 million people
living in poverty in the region. The OECD points out that in its
current economic situation, Latin America has less “fiscal
space” to mitigate the inevitable oncoming recession than it did in 2008,
before the global financial crisis. The IMF is now
predicting a bigger economic contraction in Latin America than any
other developing region. Compounding the situation even further, US
dollar-denominated debt was on the rise in 2019, up 3%. This is a
particular challenge for Latin American countries, many of which have
highly volatile national currencies. Recessions push inflation,
meaning that the value of national currencies is likely to
depreciate against the dollar. This will make it even harder for debts to
be repaid. For the average citizen in Latin America, it’s shaping up to
be a tough few years ahead. In a recent interview with the Financial
Times, the new vice-president of the World Bank for the region, Carlos
Felipe Jaramillo, stated he was “very worried about what [the economic
fallout of the virus] means for Latin America in terms of poverty,
poverty numbers, employment, incomes, and inequality, which has always been a
problem.” Later in the interview, Jaramillo points out the role that innovation
and entrepreneurship can play in helping to increase productivity, as a means of
bringing relief from the economic crisis. He cites the example of
Kenya’s M-Pesa money transfer system as an example of this in
action. I happen to agree with him — financial innovation is exactly the
tonic that Latin America needs to help it survive this crisis and thrive
beyond it. I came to this realization myself through my own discovery of
Bitcoin back in 2012. At that time, there were strict controls on the
transfer of capital, imposed by the government. These controls made it all but
impossible to transfer money in or out of Argentina. A friend living in Silicon
Valley told me to open an account and transferred some BTC to me. Twenty minutes
later, I sent it back, but he told me to keep one and play around with it. The
ease of that financial transaction, at a time when I couldn’t have
legally bought a single U.S. dollar if I’d wanted to, opened my eyes to
what an open financial system could look like. I decided to devote my
life to helping develop and spread the word about Bitcoin. In 2014, I
founded the Bitcoin Center in Buenos Aires. Today, we have ten countries
in the region with active Bitcoin communities and meetups. And it’s
working — people are starting to see the potential of
decentralized open finance. A survey last year by Statista showed
that, of the top seven countries to adopt cryptocurrencies, five are in
Latin America. Even though I’d like to think that this level of adoption
is all down to the efforts of us, early evangelists, the reality is that the
economic circumstances in Latin America make fertile ground for the
adoption of crypto. A significant part of the reason for Bitcoin’s
popularity is the factors mentioned above. Cryptocurrencies level the
financial playing field. Using Bitcoin doesn’t require you to go
to a bank, hand over your passport and undergo complex KYC checks and credit
ratings scores. Anyone with a smartphone can start using cryptocurrencies
within seconds, meaning it holds vast potential as an enabler of
financial inclusion. This is how Kenya’s M-Pesa system took off —
because it bypassed the need for a bank account, making it a viable option for
the unbanked and those in poverty. As the economic crisis bites on Latin
America, Bitcoin has the potential to do the same. Unlike M-Pesa,
which relies on national currencies, Bitcoin holds another
attraction for the people in Latin America. The value of the
Argentinian peso has fallen by 85% against the U.S. dollar in the last
five years — and that’s not unique within the region. With such a low
level of confidence in national currencies and purchasing power loss that
make Bitcoin volatility irrelevant, people prefer to convert their
funds to crypto. When the Argentinian government clamped down on
crypto last year, the people simply started using LocalBitcoins and other
peer to peer means of exchange. These days, using crypto doesn’t even
mean depending solely on Bitcoin as a store of wealth, given it has also shown
record volatility levels this year. Stablecoins are more available than ever
before and backed by a wide range of more stable currencies, including the U.S.
dollar and the euro. These foreign currencies would have been entirely
inaccessible to many citizens of Latin America a few years ago. Now they’re
available to buy in virtual form within seconds, using only a smartphone and
without going through any middleman. Decentralized finance is taking off
in a big way, and opening up even more opportunities for financial
inclusion for people in Latin America. Stablecoins pegged to the U.S. dollar and
backed by crypto allow holders to use their crypto as collateral
on loans, creating new avenues of lending for those who would otherwise be
ineligible for bank credit. If someone does have a store of wealth in crypto,
they can stake it and earn interest from those wishing to borrow. Blockchain is
also becoming more interoperable. Therefore, it seems reasonable to expect that
within a few years, decentralized finance applications running on Bitcoin and
other platforms will run together seamlessly, allowing a lender on one platform
to loan funds to a borrower on another. Tokenizing traditional assets, such as
commodities or even real estate, could finally bring true democratic access to
the broader financial markets. Due to the continuing challenge of the pandemic,
things seem bleak right now. The next few years will be some of the most
economically challenging in LATAM’s history. However, those of us in the crypto
space have an opportunity and a responsibility to use our knowledge, expertise
and influence to help use digital finance as a way of alleviating the situation
for the benefit of young and future generations. This article contains
links to third-party websites or other content for information purposes only
(“Third-Party Sites”). The Third-Party Sites are not under the control of
CoinMarketCap, and CoinMarketCap is not responsible for the
content of any Third-Party Site, including without limitation any link contained
in a Third-Party Site, or any changes or updates to a Third-Party Site.
CoinMarketCap is providing these links to you only as a convenience, and
the inclusion of any link does not imply endorsement, approval or recommendation
by CoinMarketCap of the site or any association with its operators. This
article is intended to be used and must be used for informational
purposes only. It is important to do your own research and analysis before
making any material decisions related to any of the products or services
described. This article is not intended as, and shall not be construed as,
financial advice. The views and opinions expressed in this article are the
author’s own and do not necessarily reflect those of CoinMarketCap.
