The cost of accessing financial products, such as banking accounts, is too high in many developing countries. As such, crypto holds more appeal and has a massive footprint in many of these countries — effectively circumventing financial barriers with ease.
Case in point is Nigeria, Brazil, and Vietnam.
Many people in Nigeria prefer payments in crypto to local currency to sidestep costly banking systems and local currency exchange rates.
Brazil businesses and individuals are investing their earnings in a basket of cryptocurrencies or in an Exchange Traded Fund (ETF), which is now the second most popular way of investing money in the country.
Vietnam individuals are investing, trading, and transacting so much in Bitcoin and other cryptocurrencies, making them the best adopters of crypto in all of Southeast Asia.
However, developed countries view crypto with suspicion — a fad too dangerous to invest in and with an imminent (bad) ending. That explains why financial regulators in the US and Europe warn about the dangers of investing in crypto.
Crypto as an alternative to weak local currencies
Local currencies are weak and fall short of storing value, which undermines their appeal.
Here are more reasons why developing countries are shifting to cryptocurrencies:
- Financial restrictions
- Expensive banking systems
- Unpredictable inflation
- Regulatory uncertainties
- Fast-moving exchange rates
For example, Nigeria — the biggest crypto market in Africa — suffers a lack of dollars in its economy thanks to capital controls, vagaries of black-market currency exchanges, and dips in the country’s oil prices. The pandemic also squeezed the dollar.
That explains why Paxful, a P2P crypto exchange, experienced an 83% increase of Nigerian users from the beginning of the year to June.
The same is happening in Venezuela and Brazil. The cost and bureaucracy of legacy financial systems in these countries have driven businesses and individuals to adopt cryptocurrencies, and for a good reason.
Crypto instability warnings
Advanced countries and major financial institutions, such as IMF, warn emerging markets of the inherent dangers of investing and adopting crypto. They insist the widespread use of crypto as a legal tender dents the macroeconomic stability of these countries.
According to the US-based multilateral lender, trading crypto exposes the financial systems of developing countries to illegal activities such as money laundering, fraud, hacking, and terrorist financing.
The UK’s Financial Conduct Authority (FCA) committee issued a warning on crypto investors that they are “about to lose their money”.
In June, the Global banking regulators committee also raised concerns about the growth of crypto — they insist banks will face imminent risks and financial stability.
Then again, how will consumers be protected from crypto scams? The poor in these countries suffer the most when this happens. But whether or not crypto succeeds in developing countries, it has (already) changed the game.
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