Emerging markets were at the forefront of last year’s massive growth in global cryptocurrency adoption. With this growth widely tipped to continue into 2022, a range of countries will see their crypto markets mature or expand.
As OBG detailed at the time, the onset of Covid-19 spurred a massive expansion in the use of cryptocurrency in a number of emerging economies.
For example, Nigeria – Africa’s biggest cryptocurrency market – was the world’s leading country for cryptocurrency adoption in 2020, with Vietnam and the Philippines coming second and third, respectively.
The worldwide growth in cryptocurrency continued throughout 2021.
By the end of the year the segment’s total market capitalisation had grown by 187.5%, while the entire market was worth a combined $2trn.
Meanwhile, according to leading research firm Chainalysis, worldwide adoption had jumped by over 880% year-on-year by August.
Throughout 2021 the most rapid adoption rates were once again seen in emerging markets. In Chainalysis' annual ranking, Vietnam, India and Pakistan were first, second and third, respectively, while the US was the only mature economy in the top 10.
Brazil – which came in at number 14 – offers a case study in how emerging economies sought to leverage crypto in 2021.
In terms of traditional financial markets, the Brazilian Stock Exchange debuted three crypto-dedicated exchange-traded funds (ETFs). Meanwhile, in the first quarter of this year the country will also see the launch of the world’s first ETF dedicated to decentralised finance networks.
In terms of institutional buy-in, the central bank announced that it was to continue working to incorporate blockchain technology into its services, by way of a series of tests carried out in-house by a dedicated team. It also unveiled plans for a central bank digital currency, which could be launched by as early as 2023.
In terms of legislation, in December the Brazilian congress approved a bill establishing criteria for the regulation of cryptocurrencies in the country.
Lastly, in terms of popular culture, crypto began to become all-pervasive. To take an example, the homegrown Mercado Bitcoin – one of Latin America’s crypto unicorns – partnered with leading football clubs in the expansion of “fan tokens”, while the non-fungible token market also established a foothold, not least through its adoption by musical stars such as such as André Abujamra and Zeca Baleiro.
Naturally, different emerging economies will continue to integrate blockchain-based technology in their own ways. But the Brazilian case is revealing of how crypto can come to permeate a national economy.
According to research firm Tellimer, the current phase in the evolution of decentralised digital currency is defined by an emphasis on scalability, sustainability, governance and blockchain interoperability. Tellimer has dubbed this phase “Crypto 3.0”.
The key characteristics of “Crypto 3.0” have made the technology even more appealing and useful in emerging markets. For instance, advances in scalability have lowered transaction fees, thus broadening access. However, it is the increase in interoperability which has proven particularly crucial.
According to Chainalysis, many cryptocurrency users in emerging markets use peer-to-peer (P2P) networks. Indeed, emerging countries are responsible for the most P2P cryptocurrency transactions.
For example, between April 2019 and June 2021 the regions of Latin America and Central and Southern Asia were together responsible for the majority of global P2P traffic.
P2P networks enable cryptocurrencies to be bought and sold via mobile devices, meaning that they can be traded in regions with limited ICT infrastructure or by people who do not have access to a computer.
This is what makes P2P key to adoption in emerging markets. For example, Statista noted in 2020 that the existing prevalence of mobile-based, P2P payments was what initially prompted many Nigerians to explore cryptocurrencies.
In light of this and other considerations, many anticipate that cryptocurrency use will expand in emerging markets going forward.
Indeed, there are already signs of what shape this expansion might take in different economies.
In December last year, for instance, it was announced that the Dubai World Trade Centre will become a crypto zone and regulator for cryptocurrencies and other virtual assets.
Elsewhere, last year the Philippine Stock Exchange similarly announced that it is seeking to become a platform for trading crypto assets. However, it is still waiting on authorities to issue rules regarding crypto trading.
Crypto is not without its detractors, however. At the end of January Tobias Adrian – head of the IMF’s monetary and capital markets department – told the Financial Times that cryptocurrencies are causing "destabilising" capital flows in emerging markets.
The IMF has also recently urged El Salvador to reverse its decision – taken in September last year – to become the first country to accept Bitcoin as legal tender.
Another concern is centred on cryptocurrencies’ colossal ecological footprint related to the proof-of-work concept popularised by Bitcoin. However, numerous less energy-intensive cryptocurrencies have been developed using proof-of-stake or proof-of-space concepts, which negate the need for concentrated "mining" activities requiring huge amounts of electricity. As the global momentum behind the net-zero carbon transition grows, the pace of innovation in the green cryptocurrency space is expected to accelerate further.