A Panoramic Interpretation of the Latin American Cryptocurrency Market: Growth Drivers, Institutional Recovery, and Innovation Paths in the Face of Economic Turmoil

One, Overview of the Latin American Cryptocurrency Market

According to the report, Latin America accounted for 9.1% of the global cryptocurrency received during the period from July 2023 to June 2024.

During this period, the region received approximately $415 billion in cryptocurrencies, slightly higher than East Asia.

In Latin America, centralized exchanges (CEXs) are the most popular cryptocurrency services, with 68.7% of transactions conducted through these platforms, slightly lower than the centralized exchange usage rate in North America.

In terms of trading volume, cryptocurrency trading in the Latin American region is primarily driven by institutions and professional investors (entities with transaction values exceeding $10,000).

This year, Latin America is the second-fastest growing region in the reported study, with a year-over-year growth rate of approximately 42.5%.

This growth is primarily driven by the strong but distinct cryptocurrency markets in countries like Venezuela, Argentina, and Brazil. Argentina is the country in the region with the highest value of cryptocurrency received, at around $91 billion, slightly higher than Brazil's $90.3 billion.

In Chainalysis' Global Crypto Adoption Index, four Latin American countries are ranked in the top 20: Brazil (9th), Mexico (13th), Venezuela (14th), and Argentina (15th). This will be explored in more detail in the subsequent content, as stablecoin-based remittance services are gradually gaining widespread attention and adoption in these countries and across Latin America.

Two, Recovery of Institutional Crypto Activity in Brazil, Financial Giants Return to Crypto Market

According to the report, the Brazilian crypto market has experienced significant volatility over the past year, transitioning from a sluggish state at the beginning of 2023 to a strong rebound by mid-year, indicating a resurgence of interest from institutional investors. The report notes that the global cryptocurrency bear market in early 2023 led to a significant decline in institutional trading volume in Brazil; however, as market sentiment shifted, this trend was reversed in the middle of the year, with a rapid increase in institutional trading activity. The data shows that large institutional transactions over $1 million grew by 29.2% between the last two quarters of 2023, and this growth rate further expanded to 48.4% between the fourth quarter of 2023 and the first quarter of 2024.

According to the report, one of the reasons driving this recovery is the diversification of investment portfolios. André Portilho, the head of digital assets at BTG Pactual investment bank, analyzed that "in the context of a gradually maturing market, investors are increasingly incorporating digital assets into their asset allocation, viewing them as an alternative investment option that can provide high returns. Bitcoin and other cryptocurrencies are gradually being recognized as mature investment tools, which is crucial for attracting new capital inflows. Furthermore, the recovery of the Brazilian crypto market is also driven by improvements in the regulatory environment and the entry of US institutions, particularly the launch of Bitcoin and Ethereum ETFs, which have significantly boosted investor confidence."

Aaron Stanley, the founder of the Brazil Crypto Report, observed from the perspective of the industry's overall development: "Over the past year, Brazil's crypto ecosystem has become increasingly mature. Multiple traditional financial institutions, including Itaú, Brazil's largest bank, have launched crypto brokerage services, while other major banks are also actively developing similar products. Meanwhile, leading global crypto exchanges like OKX and Coinbase have also significantly expanded in Brazil, establishing local teams and providing customized services for the Brazilian market. Additionally, the pilot project of the Brazilian Central Bank's hybrid central bank digital currency (CBDC) and the smart contract platform Drex have further encouraged traditional financial institutions to adopt more proactive strategies in the digital asset space. All of these developments have undoubtedly driven the adoption of cryptocurrencies among both institutional and retail investors."

Against this backdrop, crypto investors in Brazil have shown particular interest in certain assets. The report data shows that Bitcoin trading volume surged from September 2023 to March 2024, which may be directly related to the Bitcoin spot ETF approved by the US Securities and Exchange Commission (SEC) in January 2024. During this period, the price of Bitcoin nearly doubled, which also significantly drove the increase in trading volume.

Additionally, the report also shows that the volume of Bitcoin traded by Brazilian investors on global exchanges is far higher than on local exchanges.

However, on local exchanges, there is a clear difference in asset types. Data shows that the trading volume of stablecoins grew 207.7% year-on-year, far exceeding Bitcoin, Ethereum and other Altcoins. On this, Stanley explained: "Many local exchanges and fintech companies offer customers stablecoins pegged to the US dollar as a means of storing value. This strategy has indeed attracted a considerable number of customers, but for now, the main use of stablecoins seems to be concentrated in the B2B cross-border payment sector."

Stablecoins now account for about 70% of the share of indirect flows from Brazilian local exchanges to global exchanges. The report points out that Brazil's high interest in stablecoins and other digital assets, as well as its widespread acceptance of digital services, has also caught the attention of major crypto companies, including Circle. Circle announced its official entry into the Brazilian market in May 2024. A Circle spokesperson said: "We chose to enter Brazil at this moment because the regulatory environment is becoming clearer here. The government has implemented policies to support innovation, and there may be more business-friendly regulations in the future. We are working with leading local companies to launch digital asset products and provide 24/7 instant, low-cost USDC services for Brazilian users, while also strengthening our local business coverage. Due to this strategic commitment, the number of USDC users has already grown rapidly."

However, Brazil's crypto market still faces many challenges in its future development. The report mentioned that Aaron Stanley pointed out that the macroeconomic environment is currently one of the biggest obstacles: "Slow economic growth, a sharp devaluation of the Brazilian real (BRL) against the US dollar, persistent concerns about increased tax burdens, and heavy debt loads for middle-class households. Overall, Brazilian consumers' disposable income is far below market expectations." Nevertheless, the regulatory authorities have an open attitude towards cryptocurrencies, which lays the foundation for future growth. "Regulators view crypto technology as a tool that can be effectively utilized, rather than a threat that must be suppressed. As long as a widely recognized regulatory framework can be established, Brazil's crypto economy will have the opportunity for stable growth in the coming years," Stanley concluded.

III. Stablecoins Provide a Stabilizing Path for Argentina's Long-Term Economic Turmoil

According to the report, Argentina's struggle with inflation and the devaluation of the Argentine peso (ARS) has lasted for decades, causing many citizens to constantly seek alternative ways to protect their savings and ensure a more stable economic future. The report points out that Argentina's economic situation was particularly turbulent in 2023. By the second half of 2023, the inflation rate reached around 143%, the value of the Argentine peso plummeted, and 40% of Argentines were living below the poverty line. In December 2023, the newly elected President Javier Milei announced that the peso would be devalued by 50%, calling it a "shock therapy", while the government would cut energy and transportation subsidies.

To cope with the economic crisis, some Argentines have started turning to the black market to buy foreign currency, the most common being the US dollar (USD). This so-called "blue dollar" is the US dollar obtained through informal parallel exchange rate transactions, usually through the nationwide network of underground exchange points "cuevas". Furthermore, more and more Argentines are choosing stablecoins pegged to the US dollar to protect their financial situation.

According to the report, we looked at the monthly stablecoin trading volume in Argentine pesos on the leading Latin American exchange Bitso, and found that the constant devaluation of the peso has consistently triggered an increase in stablecoin trading volume. For example, when the peso fell below $0.004 in July 2023, the following month's stablecoin trading volume surged to over $1 million. Similarly, when the peso fell below $0.002 in December 2023 - the month Milei announced the policy - the following month's stablecoin trading volume exceeded $10 million.

The report further points out that Argentina's stablecoin market is a leader in the Latin American region. Argentina's stablecoin trading volume accounts for 61.8%, slightly higher than Brazil's 59.8%, and far above the global average of 44.7%.

Additionally, the report shows that the growth rate of retail-level stablecoin transactions (i.e., transactions under $10,000) in Argentina is the fastest among all asset types, further indicating that Argentines view stablecoins as a means to mitigate the impact of inflation and currency devaluation. Their interest in stablecoins highlights the role of cryptocurrencies in unstable markets, and how citizens can better control their financial future by embracing cryptocurrencies, regardless of the official currency policies.

IV. Robust Crypto Growth in Venezuela Despite Maduro Regime Uncertainty

According to the report, despite the turmoil of the Maduro regime, crypto adoption in Venezuela remains robust. Venezuela's relationship with cryptocurrencies has been tumultuous, from the launch of the state-backed Petro (PTR) stablecoin in 2018 to its sudden termination in 2024, to crackdowns on Bitcoin mining and blocking access to mainstream crypto exchanges, all of which reflect the complexity of the country's crypto journey. At the same time, the Maduro regime has tried to circumvent economic sanctions through cryptocurrencies, with its illicit oil trade also entangled with crypto transactions, ultimately leading to high-profile prosecutions by the US Department of Justice. These crypto-related events reveal a broader shift, where the Maduro regime has leveraged cryptocurrencies for corruption, while ordinary citizens view them as a means to secure financial independence.

Despite the turbulent situation, the Maduro regime has recently rekindled its interest in cryptocurrencies, although no specific plans have been provided yet. Regardless of these political developments, Venezuela remains one of the fastest-growing crypto markets in Latin America. The report shows that Venezuela's annual growth rate reached 110%, far exceeding any other country in the region.

What is driving this growth? First, the report notes that Venezuelans are attracted to cryptocurrencies to address the plummeting value of the bolivar (VES). Data shows a clear inverse relationship between the VES-USD exchange rate and the monthly value of crypto received. Multiple media reports also confirm that ordinary Venezuelans continue to seek stable stores of value to hedge against the country's economic crisis.

The report further points out that DeFi (Decentralized Finance) is another aspect of the growth of cryptocurrency in Venezuela. Since 2022, centralized services have accounted for the majority of the cryptocurrency value received in the country. However, interest in DeFi has been gradually increasing, particularly notable towards the end of 2023. While centralized services remain the most popular, the growth of the DeFi market share is an area that needs attention in the future, especially if the Maduro regime explicitly supports crypto innovation, DeFi growth could further accelerate.

V. Crypto activity is accelerating in the Caribbean region, although uncertainty remains after the FTX bankruptcy

According to the report, since the FTX bankruptcy, the crypto ecosystem in the Caribbean region has experienced a period of uncertainty and reduced activity, with users' trust in crypto platforms gradually diminishing. However, starting from the end of 2023, crypto activity in the Caribbean region has seen a recovery. Data shows that users seem to be turning back to mainstream centralized exchanges (CEXs) such as Coinbase and Binance.

Through the professional financial investigator David Templeman of the Cayman Islands Monetary Authority, to better understand the changes in crypto activity in the Caribbean region. Templeman pointed out that, particularly in the Cayman Islands, the number of overseas clients seeking to establish Web3 and blockchain-related legal entities has increased significantly in the past year, a trend that was not as evident in previous years. These projects typically involve Layer 1 or Layer 2, and have a wide range of applications, from artificial intelligence, cross-chain infrastructure, gaming to data and cloud storage.

Templeman summarized: "A series of collapse events (FTX, TerraUSD/Luna, Celsius Network, and Three Arrows Capital) have put pressure on the entire industry, forcing it to learn from mistakes and establish better oversight and protection measures. In the Cayman Islands, the blockchain and Web3 companies physically and legally established here have formed a strong community." Clearly, crypto activity in the Caribbean region is thriving again, consolidating the region's position as an important hub for crypto adoption in the coming years.

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