Emerging economies are winning the crypto race, here’s why
According to a recent report released by Chainalysis about global crypto adoption, emerging and frontier markets are leading the race. This makes sense as crypto’s use cases are much more relevant and help improve people’s lives in these countries.
What are emerging markets?
To understand why these countries use crypto the most, we must first identify the key characteristics that describe emerging markets.
An emerging market or economy is in the process of developing and becoming more engaged with other global markets. In other words, it’s a nation transitioning from a low income, less developed, and somewhat unindustrialized economy towards a modern, industrial economy with a higher standard of living. Usually, countries under this classification tend to have or are starting to show some characteristics of a developed economy.
Furthermore, the IMF classifies economies as “advanced,” based on such factors as high per capita income, exports of diversified goods and services, and greater integration into the global financial system. The remaining countries are classified as “emerging market and developing” economies.
Key characteristics of emerging economies
Being in the middle of a developing process, emerging economies often experience accelerated growth, which is why they attract significant foreign capital investments.
Nevertheless, as this sudden growth becomes prolonged, these nations may start to undergo some inconveniences, like political and financial instability or lack of proper infrastructure to sustain an expanding market.
Additionally, emerging economies suffer from high inflation because many of these countries have volatile exchange rates and do not necessarily have a well-established central bank to operate monetary policy. This is especially true in socialist governments with strong welfare policies, as their government often finances their expenditure by money printing.
Finally, although progressively moving towards it, these markets are not yet open to the global economy. Being isolated from international payment services and networks, citizens of these countries tend to have a hard time sending money abroad or acquiring imported products.
Crypto and emerging markets
In their report, Chainalysis shows that emerging markets are taking the lead in the cryptocurrency adoption race, primarily through P2P exchanges.
What’s particularly interesting about the report — beyond its results, of course — is the metrics used. These were:
- On-chain value received by country.
- On-chain retail value received by country (transactions under $10,000)
- P2P exchange trade volume.
However, the research adjusted all these metrics to each nation’s purchasing power parity (PPP), which measures the country’s wealth per resident. According to Chainalysis, “the higher the ratio of on-chain value received to PPP per capita, the higher the ranking, meaning that if two countries had equal cryptocurrency value received, the country with the lower PPP per capita would rank ahead.” In the case of P2P exchange trade volume, they also considered each country’s internet users.
Adding purchasing power parity to the equation allows us to estimate how much of their actual savings and net worth are people converting to crypto, rather than how much dollars. And the results show that emerging countries are leading the P2P exchange trade volume.
Why are these people adopting crypto?
We can think of many reasons as to why these nations are leading in crypto adoption and P2P exchanges. Firstly, it is logical that P2P is their gateway into cryptocurrency and the most popular means to acquire it. It provides a more straightforward platform for turning fiat — especially non-reserve currencies like the Venezuelan bolivar or the Kenyan shilling — into crypto.
As we mentioned before, emerging economies suffer from high, sustained inflation, which leads to their national currency’s devaluation. Moreover, other countries like Argentina don’t allow their citizens to acquire foreign, more stable currencies or tax this kind of exchange heavily, offering unfair rates. In these situations, a capped-supply currency like Bitcoin or a dollar-pegged stablecoin provides an alternative for people to escape inflation and preserve their savings purchasing power in the long term.
Additionally, crypto facilitates all types of international transactions and payments, either to purchase any foreign products or for individual remittances. These are very popular in emerging markets but hard to perform due to inaccessibility to foreign currencies, unfriendly policies for international trade, and isolation from the global market.
The future of crypto adoption
This is incredibly positive news for people at a disadvantage who don’t enjoy the reassurance of a stable financial system. The data provided by Chainalysis’ report indicates that more and more people in emerging economies are discovering the true value and benefits of crypto and are relying on it to guarantee a better future for themselves and their families.
However, we shouldn’t be complacent. There’s still much ground to cover and much more applications to implement for crypto. If it’s helpful now, imagine when people in arduous financial situations can use crypto to pay for their groceries or when online marketplaces accept them as a form of payment. Financial inclusion is not even close to where it could be if we harnessed the full potential of cryptocurrencies and blockchain technology.
Still, we should be optimistic. These findings confirm that we’re on the right track and that the general public finally realizes that if you overlook the short-term volatility, cryptocurrency’s benefits outweigh the downsides.
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