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Emerging markets pave the way for crypto’s utility

Yayın RAIN EDITORIAL TEAM - Apr 07, 7:00 PM

The pandemic was a boon to the cryptocurrency industry, with adoption and prices soaring. Some sought cryptocurrencies as a safe haven, while others flocked for the potential asset growth during the uncertainty of the pandemic. A surge in adoption and prices in 2020 saw the market cap of the crypto industry rise by almost 300% to total cUSD 758bn by year-end. This continued until the second half of 2021, signaling the beginning of a new chapter for the cryptocurrency industry, which saw digital assets move onto the balance sheet of institutional investors. We saw pension schemes, university endowment funds, and investment trusts flock to crypto. Likewise, consumer-facing payment gateways like Paypal are allowing customers to hold, buy, and sell directly from their accounts. Former criticsVisaandJP Morgan have also changed their tune. These past two years were pivotal for the industry and solidified its position in the discourse over the global economy.

Crypto has matured from fringe technology to center stage in the global mainstream, and now a dominant part of our everyday conversations on markets, value, and the future. Adoption of cryptocurrency rose around 2300% between Q3 2019 and Q2 2021, according to blockchain researcherChainanalysis; the increase was about 880% in 2021 alone. Chainanalysis uses three metrics to measure adoption - total cryptocurrency activity, total activity from retail investors and peer to peer transaction volumes. The research adds weight on the amounts invested and the corresponding average wealth per capita in that country, this is fairer for developing countries where the amounts being put in are far more significant for people. Every dollar spent in those countries on crypto is far more significant on a per capita basis. As we analyze and headline the large-scale institutional investment in the developed world, with the big flagship names like Paypal and Tesla, we overlook the mass adoption happening in the developing world. Cryptocurrencies offer plenty of benefits to the developing world and, most importantly, the people who live there, who have long been marginalized by traditional financial institutions. That growth is often overshadowed by headlines focused on large corporations. 

The drive in the developed and developing world are both growing but are fundamentally different in nature. In the developed world, the headlines are still dominated by institutional players entering the space, and while question marks still remain over regulation, it is on the agenda in multiple developed nations. In the United States, the Biden administration is readying anexecutive order that will guide the government’s strategy on cryptocurrency, while Russia has reversed its stance from restriction toregulation. The developing world, on the other hand, has been fruitful for the crypto industry. Financial instability, inflation, and restrictions have highlighted cryptocurrencies' utility, not just their asset growth. The 2021 Global Crypto Adoption Index of Chainalysis analyzed 154 countries and ranked them based on three metrics – on-chain cryptocurrency value received, on-chain retail value transferred, and peer-to-peer exchange trade volume - the list was dominated by emerging market players, with Vietnam, Pakistan, and India leading the way and the United States and China falling from last year’s ranking as emerging market players grow into the cryptocurrency industry. In Sub-Saharan Africa - Togo, Nigeria, South Africa, Kenya and Ghana all make Chainanalysis’s top 20 list for adoption. Crypto adoption is dominated by emerging markets. 

El Salvador became the first country to accept Bitcoin as legal tender in 2021, with a few other Latin American countries expected to follow suit. El Salvador’s President Nayib Bukele discussed the digital currency’s potential to bring more Salvadorans into the financial system with about 70% still unbanked, as well as alleviate El Salvador from dependency on the U.S dollar. In 2017, only 27% of the country’s population had bank accounts; within two months of the announcement to accept Bitcoin as legal tender, 46% had downloaded Chivo, the Bitcoin wallet launched by the El Salvador government to facilitate cheap and efficient payments using Bitcoin’s Lightning Network. Now, 2.1 million citizens or over 32% of the population are using their Chivo wallet platform that enablesfree cross-border payment and is expected to save citizens around $400 million in remittances fees per year. A number of Latin American countries could now follow suit, with discussions now with lawmakers in Panama, Guatemala and Honduras. This rapid change was seemingly impossible a few years ago, and despite IMF warnings, El Salvador has doubled down on its decision. 

Although Latin America has dominated the legal tender conversation,  there have been major movements the world over. Sub-Saharan Africa has overtaken North America to become the region with the highest volume ofcrypto activity. The World Bank “pointed out that sub-Saharan Africa remains themost expensive region to send money to, where sending $200 costs an average of 8.2 %in the fourth quarter of 2020.” On the other hand, peer-to-peer crypto network fees for a typical transaction average between 2 and 5 % through the use of Local Bitcoins. These could be significant savings for migrant workers that go toward their families. The drive behind this is the high fees imposed for transferring money and large numbers of people who remain unbanked with access to financial instruments still low - penetration rates for credit cards are also still very low. The World Bank estimates that the number of unbanked adults is around 1.7 billion – around 22% of the global population. 

Looking closer to home - the MENA region has made rapid progress on the regulatory front with still plenty of room to expand. Rain became the first company in the MENA region to receive a regulatory Crypto-Asset Module (CRA) license in 2019 through its Subsidiary Rain Management. After a two-year regulatory sandbox process, Rain became the first licensed cryptocurrency exchange in the Middle East paving the way for regulation and adoption for digital assets across the region. The UAE followed suit with Abu Dhabi setting up their very own virtual assets framework in the Abu Dhabi Global Markets (ADGM). Rain has also received in-principle approval via the ADGM in 2022. Bahrain and the UAE have ventured first and will reap the benefits of moving before the other regional players that will set them apart in the long-term. There is further growth in the broader MENA region with Turkey and Pakistan being homes to highly active cryptomarkets. Turkey has by far the highest transaction volume

in the region at $132.4 billion during the time period studied in the Chainalysis 2021 Geography of Cryptocurrency Report. Pakistan has seen its market rise by 771% from 2020 to 2021, as documented by the Chainanalysis report. 

Cryptocurrency’s widespread adoption showcases how technology can promote development and allow emerging market players to leapfrog into the future. Traditional financial infrastructure has left many in the developing world with higher barriers to entry that are slowly being eradicated with cryptocurrency adoption. This is allowing previously marginalized groups in society to take part in the global economy. The door is now open and the limits will be endless as cryptocurrency technology increases. In the future, we will look closer at other ways this industry and the blockchain technology behind it can further empower the developing world. Smart contracts can record all transactions and agreements to ensure fairness to all parties in a business agreement. This is just the beginning for cryptocurrencies fueled by a previously marginalized sector of the global economy. 

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