According to recent research by Chainalysis, cryptocurrency transfer in Latin America region has continued to rise since March. This is amidst the coronavirus that has disrupted the economy in the region.
Chainalysis, a blockchain analytic firm in a report about how Latin America mitigates economic turbulence with cryptocurrency depicted how unbanked businesses and individuals now use cryptocurrencies for exchange, store value, and a way of investing.
In summary of the research, it was concluded that an ineffective banking system has fueled the rise in crypto adoption.
From inception, fiat remittance into banks in Latin America comes from the US. Majorly, migrant workers who work in the US send money to their families through Banks.
However, Latin America has strong ties with East Asia when it comes to crypto transactions. Between these two continents, crypto transactions worth $1billion has been completed.
The researchers found out that many of these transactions are from businesses in Latin America to pay for goods bought from Asian exporters to sell at home.
In an interview with Luis Pomata, co-founder of Paraguay-based exchange Cripex, he explained that cryptos enable traders to dodge expensive wire transfer and import fees regional banks levy on goods.
Apart from businesses, individuals also find dealing with banks difficult making them opt for cryptocurrencies.
According to Sebastian Villanueva, manager of Chilean operations for the exchange SatoshiTango. He explained that Latin Americans make uneven income from side hustles. Therefore, the transition to crypto is necessary because it is easier to use than opening a bank account.
Latin Americans are also finding cryptocurrency to be a better store of value than their unstable national currencies.
In the Chainalysis report, the amount of P2P (cryptocurrency) trading volume in many Latin American countries rises as the native currency depreciates.
Brazil ranks as first amidst Latin American countries that use cryptocurrency the most. After Brazil is Venezuela which accounts for the third-highest number of transfers on Localbitcoins and Paxful, two of the most popular worldwide P2P exchanges.
History behind banking crisis in Latin America
According to a research published by Inter American Development Bank, Banking crisis began in the 1980s in industrial and developing countries.
In Latin America, the Banking crisis began as a result of external debt in 1982. Policymakers then did not respond to these crises with stringent fiscal and monetary policies.
Bankers then also then did not put disciplined bank restructuring programs in place. This crisis then had prolonged effects with some lasting almost a decade.