Crypto in Brazil
With a history challenged by inflation, low financial inclusion, and economic instability, Latin America has become a hotbed of financial innovation. Roughly 1 in 4 adults¹ do not have any account with a financial institution, and cash is still king. Latin America has rapidly risen to become one of the world’s fastest-growing tech hubs, with venture capital investment tripling from $5bn to $15bn in² a single year; much of that capital has been aimed squarely at the financial sector, with 40% of VC funding in 2021³ flowing to fintechs.
Amidst the turmoil and innovation, cryptocurrencies have become a mainstay in Latin America. The region receives 9% of global crypto value, and three of Latin America’s largest economies were listed in the top 20 of global crypto adoption: Argentina (10th), Colombia (11th), and Brazil (14th)⁴. El Salvador has famously become the first country in the world to adopt Bitcoin as legal tender, while regulators across the continent are leading the way for mainstream regulation.
Cryptocurrency flows in 2021 by country
Latam Americas received upwards of $520 billion from cryptocurrencies in 2021
Source: Americas Quarterly
Despite recent market declines, many Latin Americans believe in the long-term value of cryptocurrencies. Latest surveys show 59% of Latin Americans say that crypto is the future of money — the strongest level of belief compared to any other region in the world⁵. Adoption is surging ahead of developed markets like the US, and especially so recently, with over half of users making their first crypto purchase in 2021.
Crypto Adoption (2021)
Source: Statista
Brazil, as LatAm’s largest economy and crypto hotbed, warrants a deeper dive.
Brazil: A strong ecosystem driven by market failures
In 2021, Brazil was the largest market in Latin America by transaction volume and the fifth-largest country in the world by value received⁶. Fast adoption and the size of the market propelled the Sao Paulo-based crypto exchange, Mercado Bitcoin, to become the second Latin American crypto unicorn (hot on the heels of Mexican exchange Bitso).
This optimism, though a strong vote of confidence for crypto, belies an indictment of the formal economy.
Inflation has been a primary driver of crypto adoption around the world, and this rings true in Latin America. The top 4 countries by adoption — Argentina, Brazil, Colombia, and Chile — have experienced the worst inflation on the continent. In the last 10 years, the Brazilian real has depreciated 200% against the dollar; two in five Brazilians holding crypto say they hold it as a hedge against inflation⁷.
Brazilians have historically lagged in their investment participation as well. As of 2020, only 1.9% of Brazilian adults invested in the stock markets; compared to the emerging market median of 2.4%, Brazil is behind. This is surprisingly incongruent to other indicators, since Brazil is widely held to be at the forefront of financial innovation in LatAm and B3, the Brazilian stock exchange, is the largest exchange in the region. Inflation is one challenge to investing in the B3, but it is not the only problem. Roughly two in five Brazilians do not know what the stock market is, and amongst those who do, many have low trust or negative associations from past experiences, like famous get-rich-quick scams or crashes⁸.
How to win in Brazil
On average, there are now 8 cryptocurrency holders for every 1 Brazilian adult invested in the stock market. Like the majority of crypto owners globally, most Brazilians use crypto as a store of value rather than as a medium of exchange. Therefore, the market entry points revolve around value creation opportunities at familiar institutions.
After a decade of unbundled point fintech solutions that have flooded the market, the Brazilian fintech ecosystem is experiencing a new period of bundling. Neobanks and neobrokers are joining the race to become the next fintech super-app. These fintechs have made large strides to build trusted brands that increase financial inclusion, and with digital capabilities that legacy Tier 1 banks don’t have, they are the key beachhead for new crypto products. Products like crypto rewards credit cards and passive staking, with clear upside potential and low penetration, are crypto wedges for fintechs.
Global competitors have tried to gain a foothold in LatAm, especially via Brazil. Coinbase has framed Brazil as a key geography⁹, spreading their entrance through investments into Hashdex (crypto asset manager) and Bitso (crypto exchange), though their acquisition attempt of 2TM/Mercado Bitcoin was ultimately scrapped for liquidity reasons when their stock price dipped. The current competitive landscape is highly sophisticated in Brazil as it is across LatAm, so new local entrants require highly differentiated solutions.
Outlook: the crypto cascade falls on favorable ears
Brazilians are the most vocal supporters of mainstream cryptocurrencies in the region. In recent surveys, half of Brazilians believe that crypto is the future of money supported adoption of Bitcoin as a legal tender, similar to El Salvador.¹⁰
The groundswell of support for crypto adoption has been well-received by Brazilian institutions. The B3 currently facilitates trading of ETFs tracking decentralized assets, with plans to soon facilitate Bitcoin futures trading¹¹. Early in 2022, the Senate passed a “Bitcoin bill” regulating cryptocurrencies, and many observers forecast that the bill has a high likelihood of passage into law later in the year. The Brazilian Central Bank (BCB) is also preparing the launch of a centralized digital currency, called “Real Digital”, recently announced by the regulator.
Aside from regulation and crypto volatility, education persists as an obstacle to mainstream adoption. In a 2021 survey conducted by Sherlock Communications, 68% of Brazilians said that they had never heard of the blockchain. Yet Brazilians are still the most crypto-savvy in the region, with the highest levels of blockchain awareness amongst Latin American countries¹², and their outlook is still rosy: adoption of cryptocurrencies is projected to grow 90% in 2022 alone¹³.
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References
- https://www.worldbank.org/en/publication/globalfindex#:~:text=Financial%20inclusion%20is%20a%20cornerstone,payments%20to%20savings%20and%20borrowing
- https://lavca.org/industry-data/2022-lavca-trends-in-tech/
- https://verbena-wholesaler-4eb.notion.site/Ecosistema-de-Venture-Capital-y-Growth-Equity-039cf9e310d84c47932c58d30c41b86d
- https://go.chainalysis.com/2021-geography-of-crypto.html
- https://www.gemini.com/gemini-2022-state-of-crypto-global.pdf
- https://go.chainalysis.com/2021-geography-of-crypto.html
- https://www.gemini.com/state-of-crypto
- https://www.nasdaq.com/articles/5-reasons-why-brazilians-are-not-investing-stocks-2015-01-29
- https://blog.coinbase.com/ol%C3%A1-from-brazil-b056f9000629
- https://www.nasdaq.com/articles/survey%3A-48-of-brazilians-want-to-make-bitcoin-a-legal-currency-2021-09-10
- https://bitcoinmagazine.com/markets/b3-to-offer-bitcoin-futures-contracts#:~:text=B3%2C%20the%20Brazilian%20stock%20exchange,to%20offer%20crypto%2Dbased%20services.&text=May%2016%2C%202022-,B3%2C%20the%20Brazilian%20stock%20exchange%2C%20will%20begin%20trading%20bitcoin%20futures,to%20offer%20crypto%2Dbased%20services
- https://www.bloomberglinea.com/2022/03/28/crypto-adoption-seen-accelerating-across-latin-america-in-2022/
- https://www.bloomberglinea.com/2022/03/28/crypto-adoption-seen-accelerating-across-latin-america-in-2022/
Other sources
- https://www.bloomberglinea.com/2022/03/28/crypto-adoption-seen-accelerating-across-latin-america-in-2022/
- https://www.as-coa.org/articles/explainer-crypto-latin-america#:~:text=Latin%20America’s%20largest%20economy%20is,above%20%242%20billion%20last%20year%20.
- https://www.americasquarterly.org/article/is-crypto-the-path-to-financial-inclusion-in-latin-america/
- https://www.statista.com/statistics/1202468/global-cryptocurrency-ownership/
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