Cryptocurrency adoption is largely driven by remittance payments in Latin America

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Over the last few years, the adoption of cryptocurrencies has surged significantly in the Latin American region. Even during the current downturn in the crypto market, the adoption of digital assets has surged. According to PayNXT360 estimates, the adoption has increased by 22% in Latin America in 2022 over the past year. Notably, remittance payments are one of the leading factors driving the adoption of cryptocurrency in the region.

Rising interest rates and inflation are having a severe impact on consumers across the world, and the Latin American region is no different. In fact, countries such as Argentina and Venezuela have witnessed the highest inflation rates around the world, 79%, and 114%, respectively. As consumers continue to struggle with high inflation rates, many have turned to cryptocurrencies to preserve value amid the plummeting local currencies. 

In Latin America, remittance payments have been gaining strong momentum over the last few years. However, the proliferation of crypto-based remittances is still uneven across the region. For instance,

• El Salvador, the Latin American country where the government announced Bitcoin as a legal tender, has seen Bitcoin remittances worth US$52 million between January 2022 to May 2022.
• Meanwhile, Mexico has experienced billions in crypto-based remittance payments. As of June 2022, Bitso, one of the leading cryptocurrency exchanges in Mexico, facilitated US$1 billion in remittance payments from the United States, representing a growth of 400% year over year.

Notably, the United States-to-Mexico remittance corridor is one of the largest in the world. According to a report from the Mexican central bank, remittances to Mexico reached a record high of US$5.3 billion in the month of July 2022. This represented an increase of 16.5% as compared to the same period in 2021. The July 2022 figures are also higher than June 2022 and May 2022, when the remittances were recorded at US$5.144 billion and US$5.142 billion, respectively.

The central bank has attributed the record flow in remittances to the buoyant employment levels in the United States.  As of July 2022, the remittances to Mexico have reached US$32.8 billion, according to central bank data. This represents a growth of 16.4% year over year. By the end of 2022, the central bank has projected remittances to reach US$60 billion.

To capitalize on this booming market, fintech firms in the Latin American region are expanding their presence in the remittances sector. For instance,

• In September 2022, Uala, an Argentina-based leading fintech firm in the region, announced that it will allow clients in Mexico to receive money from other countries. This move from the firm is part of its strategy to capitalize on the US$60 billion remittances market in Mexico.

Notably, ABC Capital, the Mexican bank acquired by Uala in November 2021, will operate the remittance service. The remittances are limited to US$900 per month and the money can be used for purchasing goods and services through the Uala ABC card. Furthermore, people can also withdraw the money received through ATMs.

With the fear of inflation still looming strong and the value of local currencies depreciating at a rapid rate across major Latin American economies, PayNXT360 expects the adoption of cryptocurrencies to further surge over the next three to four years in the region. This will subsequently result in more crypto-based remittance payments from the short to medium-term perspective. Overall, the remittances market is projected to record strong growth across Latin American countries, especially Mexico, where inward remittances are projected to reach US$60 billion in 2022.