SP Emerging Finance Series | Crypto Usage in Latin America
Southern Pulse is excited to bring you the Emerging Finance Series, which aims to explore and clarify the latest trends in financial technology. Our first article explores the growing use of cryptocurrencies in Latin America. The content below is for informational purposes only and does not constitute financial advice.
Bitcoin, the world’s most popular cryptocurrency, reached a record high value of more than USD93,000 this week after Donald Trump won the US presidential election.
While it may be easy to write off cryptocurrencies as a fad, any business in Latin America should pay attention to this sizable — and growing — financial sector.
Latin America received nearly USD415 billion in crypto between July 2023 and June 2024, blockchain analytics firm Chainalysis found in its latest Geography of Cryptocurrency report.
Crypto is not going away anytime soon, and companies should take time to understand their exposure to digital assets.
What are cryptocurrencies?
Cryptocurrencies (often known as “crypto”) are a digital form of money whose transactions are recorded using a public ledger. They are decentralized, meaning that no central bank controls them.
Cryptocurrencies fall into a wider category of digital assets, which also includes non-fungible tokens (NFTs) and central bank digital currencies (CBDCs). These digital assets are held in a digital wallet. They can be traded for other types of cryptocurrencies or “cashed out” in the form of local fiat currencies.
While government regulations may require crypto exchanges formally established in a Latin American country to collect customer information for large transactions, the ledger does not publicly show the individuals or groups associated with a particular wallet.
Cryptocurrencies may often be associated with scams or fraud, but they also offer financial inclusion opportunities for individuals and businesses in a region prone to inflation and informal work. This brings a unique set of risks and challenges to an area already under scrutiny for tax evasion, money laundering, and the penetration of organized crime.
Here are three key things you should know about cryptocurrency use in Latin America.
Which countries have the highest volume of crypto transactions?
Latin America lags behind larger economies such as the United States and Europe when looking at the volume of crypto transactions the region receives. However, it has proven to be a unique testing ground for crypto services due to factors including high inflation, informal work, reliance on remittances, and — in some countries — limited access to US dollars.
While El Salvador has dominated the spotlight after making bitcoin legal tender in 2021, most of the crypto activity in Latin America happens in other countries.
Argentina received about USD91.9 billion between July 2023 and June 2024, Chainalysis found — the highest amount of any country in the region. Brazil followed with about USD90.3 billion. Venezuela’s market expanded the most, with its value received growing 110% year-over-year.
Four Latin American countries have a spot on the latest Chainalysis Global Crypto Adoption Index measuring grassroots crypto adoption: Brazil, Venezuela, Mexico and Argentina.
The firm found that Latin America’s crypto market grew 42.5% year-over-year — the second fastest-growing region after Sub-Saharan Africa.
The age group with the highest crypto adoption rate was the 25 to 34-year-old segment, a study from Mexico-based crypto exchange Bitso found earlier this year.
While Central America makes up a smaller share of crypto transactions than larger markets such as Brazil, Argentina and Venezuela, the region is notable for being home to several grassroots projects seeking to develop so-called “circular economies” with bitcoin. These include Bitcoin Beach in El Zonte, El Salvador; Bitcoin Lake in Panajachel, Guatemala; and Bitcoin Jungle in Costa Rica. Separately, a high-profile startup city on the Honduran island of Roatán called Próspera — which recognized bitcoin as a unit of account — gained international attention for its legal battles with the government.
What are the main use cases for crypto in Latin America?
While the benefits of using crypto regularly may not be immediately clear in economies with strong currencies, many people and businesses in Latin America are finding crypto to be useful for everyday activities.
The main possible use cases for crypto in Latin America fall into a few categories.
Saving and Investing
One of the most popular use cases for crypto in Latin America is saving to hedge against inflation using a so-called “stablecoin.” Unlike volatile cryptocurrencies such as bitcoin, stablecoins keep parity with a certain type of fiat currency, such as the US dollar or euro.
Crypto exchange Binance found that about half of the 10,000 crypto users it surveyed in Latin America were using digital assets for savings and long-term investments. Popular stablecoins include US-dollar pegged Circle (USDC) and Tether (USDT).
Colombia had the highest share of stablecoin transaction volume in the region at 66%, Chainalysis data showed, followed by Argentina at 61.8%. The data considered retail-sized transactions under $10,000. In Argentina, a country known for having high inflation and public distrust of banks, stablecoins have provided many people an alternative to buying US dollars from exchange houses and stuffing them under the mattress.
Crypto also offers an alternative form of investment, with Brazil’s Hashdex and QR Capital introducing crypto-related exchange-traded funds (ETFs) on the Brazil Stock Exchange.
Remittances
In Latin American countries with sizable diaspora populations, crypto provides one way to receive money from family and friends living abroad. While remittance services such as Western Union, Remitly, and Wise provide options for sending various currencies digitally, crypto may provide some relief from high commissions and unfavorable exchange rates.
Venezuela, whose diaspora now totals more than 7.7 million based on the latest figures from the United Nations International Organization for Migration, is one country where crypto has played an integral role in remittances. Crypto made up about 9% of the USD5.4 billion or so in remittances sent to Venezuela in 2023, a recent Bloomberg article said.
“For the citizens of Venezuela who continue to experience this decade-long financial collapse, legitimate cryptocurrency exchanges and personal wallets became a way to easily send and receive remittances, protect assets, shield hyperinflation, and provide a way to evade governmental controls and restrictions,” an April 2024 Wilson Center report states.
However, crypto does not play a significant role in remittances to all Latin American countries. Despite bitcoin being legal tender in El Salvador, crypto made up only about 1.1% of remittances to the small Central American country between January and August 2024, the local newspaper El Mundo reported. Early technical issues with the government’s Chivo-branded digital wallet and bitcoin ATMs combined with bitcoin’s price volatility seem to have contributed to the lack of uptake. Survey participants cited in a 2022 US National Bureau of Economic Research working paper said one of the main reasons they didn’t use bitcoin was a lack of trust in both the wallet technology and cryptocurrency itself.
Blockchain technology is also helping enable faster cross-border payments for both crypto and fiat currency. Bitso estimated that its business service — which uses blockchain technology to move both fiat currency and crypto across borders — managed “more than 10% of the volume of remittances in the Mexico-United States corridor,” in April 2024, El Economista reported.
Trading and Spending
In the past, the only way to spend crypto at a physical store was if a merchant accepted it as a form of payment. But now, spending with digital assets has become increasingly easier in certain countries.
Banks in Brazil including Nubank, Itaú and BTG Pactual have all launched some type of crypto trading service. The payment platform Mercado Pago offers crypto trading in Mexico, and recently launched its own stablecoin in Brazil. Bancolombia Group also launched a cryptocurrency subsidiary called Wenia.
Several crypto companies have partnered with credit card networks to issue prepaid and debit cards to pay with crypto — even if merchants do not directly accept it. These include Lemon’s prepaid Visa card supporting payments in crypto and Argentine pesos, Bybit’s Mastercard debit card, and Ripio’s prepaid Visa card. The world’s largest crypto exchange, Binance, also used to offer a Mastercard in the region. However, it discontinued its cards in Latin America and the Middle East in 2023 for undisclosed reasons after Mastercard ended the relationship. Visa also pulled away from its Binance partnership, Bloomberg reported.
Despite these offerings, financial institutions have still faced major regulatory roadblocks in several countries. When Mexican billionaire Ricardo Salinas said Banco Azteca was working to offer bitcoin purchases in 2021, the country’s central bank clarified that crypto is not legal tender and that banks were not authorized to use it. In 2022, Argentina’s central bank banned financial institutions from providing crypto. Regulations throughout the region continue to evolve.
Bitcoin Mining
As crypto transactions grow, Latin America has become a hotspot for bitcoin mining. The practice involves using rigs of fast, purpose-built computers to solve math puzzles that work to validate transactions on the blockchain. The first to solve the puzzle gets a bitcoin reward, which now totals 3.125 BTC per block (more than USD270,000 at the time of publication). The blocks are rarely solved by one person, but rather groups known as “pools.”
Because of the energy this activity consumes, bitcoin mining firms are looking to countries with renewable and affordable energy sources. The most high-profile example of crypto mining in the region is Paraguay, whose grid operator recently increased electricity prices for miners. El Salvador has also mined its own bitcoin using geothermal energy from a volcano.
Employee Payments
Freelance workers in Latin America often prefer to be paid in a stable currency, such as the US dollar. While there does not appear to be widespread data on how many people in Latin America are being paid in crypto, some workers seem open to the idea. San Francisco-based payroll company Deel is one company offering technology for users to withdraw their paycheck in crypto. The company said in May 2023 that it had seen a 27% increase in crypto withdrawals in Latin America over a six-month period, Bloomberg Línea reported.
How is crypto regulated in Latin America?
Crypto regulations are still evolving worldwide, and Latin America is no exception. While El Salvador remains an outlier in going as far as to make bitcoin legal tender, several Latin American countries have established regulatory frameworks for regulating cryptocurrencies or are in the process of developing them.
Many companies offering crypto-related services — in Latin America and elsewhere — see regulation as a positive development that legitimizes the industry and provides clear ground rules for how to operate in local markets.
In the past few years, Latin American countries have increasingly paid attention to regulating cryptocurrencies and collecting taxes on capital gains when their residents profit from trading them. While crypto is still unregulated in several Latin American countries including Panama and Costa Rica, new frameworks are emerging. Bolivia’s government recently reversed a longstanding ban on crypto for financial institutions as the country faces a dollar shortage, and Uruguay just passed a long-awaited law to regulate crypto.
Some Latin American countries are further along than others in defining regulations for crypto companies operating locally. At the very least, these regulations tend to put an entity such as the central bank or securities regulator in charge of overseeing crypto companies. More-developed frameworks — including those in the leading markets of Argentina and Brazil — detail specific licensing requirements for companies offering crypto-related services such as trading and custody.
While each country is responsible for developing its own regulations, many have looked to the so-called “Travel Rule” outlined by the Paris-based terrorist financing watchdog Financial Action Task Force (FATF) as an international standard. FATF recommends that companies offering crypto services collect information about parties involved in transactions of USD1,000 or more.
As Latin American countries increasingly introduce crypto licensing regimes that seek to comply with international anti-money laundering guidelines, startups may find it harder to enter these markets if they do not have the required funds or protocols in place. Meanwhile, crypto users sending or receiving large amounts of money will likely have to provide identification. However, stricter regulations may benefit the region’s crypto industry in the long run by providing an environment where companies can operate without fearing enforcement surprises.
Here are some Latin American countries that have adopted financial regulations including digital assets.
💡Looking to discuss country-level regulations or developing crypto legislation in Latin America? Request a call with Southern Pulse here.
Argentina
Argentina now has some of the most strict cryptocurrency regulations in Latin America. Earlier this year, the country’s National Securities Commission (CNV) implemented a virtual asset service provider (VASP) registry for companies offering cryptocurrency services. The list shows 87 registered companies and six individuals. Some bitcoin enthusiasts seemed disappointed that Argentina’s self-proclaimed “anarcho-capitalist” president moved forward with the registration requirement, while crypto companies including Binance and Bybit highlighted their place on the registry.
Brazil
Brazil established that its central bank would supervise the country’s virtual asset service providers in 2023. The bank is taking a phased approach to regulate crypto assets and virtual asset service providers, Reuters reported. The bank has proposed a risk-based licensing structure for these companies, Brazil Crypto Report noted, and Congress is also considering legislation on segregating assets and stablecoins.
“Brazil’s Central Bank is preparing to ensure large banks, brokers, and traditional investment platforms can safely operate in the digital asset market,” Valor International reported. “However, smaller, particularly foreign, crypto-native startups that have led this market may struggle to regularize their status and meet the requirements of forthcoming regulations.”
El Salvador
El Salvador made bitcoin legal tender in September 2021. The country then passed a digital asset framework in 2023 and introduced a licensing regime that designates crypto companies as digital asset service providers (DASP).
Mexico
Mexico’s 2018 “Fintech Law” defines and regulates virtual assets, putting its central bank (Banxico) in charge of regulating these operations. The bank has taken a conservative approach to digital assets, reiterating throughout the years that it has a goal of “maintaining a healthy distance between the operation of virtual assets and the financial system.” Banxico’s rules on virtual assets issued in September 2020 “are notably stringent,” an article from legal ranking firm Chambers and Partners notes. “They aim to restrict the utilization of virtual assets by regulated financial institutions, allowing their use only for internal operations to insulate clients from associated risks.”
Uruguay
Uruguay passed a law to regulate crypto in September 2024, putting the central bank in charge of supervising digital asset providers.
The Bottom Line: Keep an Eye on Crypto
Southern Pulse believes that crypto has become too big to overlook in Latin America, and foresees that digital assets will continue to play a role in both daily life and the evolving financial sector. As long as inflation persists and dollars are hard to find, crypto will have a ready market.
Despite this, the regulatory landscape is still uneven in Latin America, with cryptocurrency regulations ranging from nascent to nonexistent. Knowledge about crypto also varies widely. In some cases, crypto-friendly lawmakers have introduced legislation in hopes of kindling wider discussions about digital assets, such as former Nuevo León senator Indira Kempis in Mexico. Crypto regulation is generally an iterative process, and bills can take years to move through Congress with many twists and turns.
Cryptocurrencies are not illegal for individuals to use in most parts of Latin America, but several countries including Argentina and Mexico have limited financial institutions from using them despite having regulations that recognize digital assets.
While governments in countries such as Brazil, El Salvador and Uruguay have taken steps to understand crypto and regulate its use, other countries have communicated their restrictive stances on keeping digital assets far away from the national banking system. Central banks in Honduras and the Dominican Republic, for example, have reiterated that financial institutions cannot use crypto and warned consumers about risks.
Latin America-based businesses should be aware of both the risks and opportunities crypto can bring and understand their exposure to these digital assets, both directly and indirectly. If you want to know how it affects you, don’t hesitate to reach out and speak to our team.
In our next installment of the Emerging Finance Series, we will take a closer look at the risks cryptocurrencies pose to businesses, consumers and the financial system in Latin America. Be sure to follow Southern Pulse on Substack and LinkedIn for the latest updates.
Wherever it is in Latin America, Southern Pulse has the experience, network, and relationships to simplify this challenging region with honest, direct answers to your most complicated questions.
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