The Cryptocurrency Industry in Latam – Country-by Country Overview of Trends and Regulatory Scenario

The cryptocurrency industry grew significantly in the major Latin American markets – Brazil, Mexico, Colombia, Chile, Argentina, and Peru, in order of e-commerce volume size – from 2019 to 2021. Still an immature sector in the 2010s, it evolved from being an investment option appealing to curious and adventurous investors to one embraced by traditional institutions and financial entities.

That is why, in our 2023 white paper E-commerce and Payment Landscape in Latin America, we looked deeply into the crypto world to bring exclusive data and expert predictions for the current and future scenario of the segment. The focus of our study was to dive into cryptocurrency as an investment and purchase option – it’s also a rising payment method, but crypto as a purchase is a more regulated, stronger industry.

In this edition of #PagNews, we look into the current and future landscape of cryptocurrencies in each of Latam’s main markets, considering purchasing volumes, regulatory scenarios, and the main trends and challenges for the segment in each country.

?? Check out also: Ebook | The Cryptocurrency Industry and Regulatory Landscape in Latin America

Enjoy!

Growth trends for the crypto segment in Latam

The growth of the cryptocurrency vertical in Latam has been driven by a myriad of factors. Firstly, the surge in the inflation rates across many countries of the region has led Latin Americans to explore crypto investments as a shield against currency devaluation, and as a way to bypass government restrictions on hard currency purchases.

Besides, they are often seen as an alternative for faster and more cost-effective remittances, rather than the traditional systems. Mexico and Colombia’s large immigrant communities, for example, have significantly embraced cryptocurrencies motivated by a desire to reduce the fees they pay when receiving money from or sending money to relatives overseas.

Another factor driving the advancement of the crypto market in Latam involves the previously mentioned regulatory improvements – albeit unevenly across the region. Brazil stands out today for its progressive crypto-friendly regulations, while Argentina is imposing stringent rules that may slow down crypto adoption in the country over time.

However, the crypto market has traditionally been volatile, alternating between periods of what the market jargon refers to as “bull markets” and “bear markets” – referring to the cycles the market goes through, with bull market meaning the moment when stock prices (or in this case, cryptocurrencies) are going up and bear market to when they are falling down.

More precisely, the cryptocurrency sector is projected to experience a 22% growth in 2024, but subsequently this expansion may be followed by a decrease in both 2025 and 2026, or a bear market. Of course, the domestic impact of these movements may vary depending on the economic landscape in each country – in general, the more unstable the economy, the higher the impact of a cryptocurrency decline in a country.

Country-by-country overview

With specific regulation required for the market to flourish, and different economic scenarios and market maturity levels in each country, Latin America’s Top Six Markets face various challenges and varied expectations and growth rates for the cryptocurrency industry.

Below, check out an overview of each of Latam’s main markets for the crypto vertical:

?? For a more in-depth look into each country and the region as a whole, download: Ebook | The Cryptocurrency Industry and Regulatory Landscape in Latin America

?? Argentina

Argentines use cryptocurrency to bypass the government’s strict dollar purchase restrictions and safeguard their savings amidst economic instability and soaring inflation. Thus, Argentina’s Central Bank has begun to take steps to restrict cryptocurrency usage, so the regulatory landscape remains uncertain.

Purchase and growth highlights

• Argentina presents the fastest growth rate in Latam, rising at a CAGR of 27% between 2023 and 2026 – when it is expected to reach US$ 6.8 billion.
• However, cryptocurrency purchase volumes are expected to grow 40% in 2024 and then to decrease 20% in 2026 – the country’s economic instability makes Argentina more sensitive to the cycles of the crypto market.
• Cross-border transactions account for 65% of crypto purchases, which is likely to be maintained until 2026.
• Citizens often turn to cryptocurrencies aiming to protect their savings in face of economic downturn and high inflation (98.6% in 2023), and to bypass government restrictions on dollar purchases and remittances.

Regulatory landscape

• The Central Bank of Argentina (BCRA) wants to curb cryptocurrency usage.
• The BCRA recently banned banks from providing cryptocurrency services to their customers, claiming that crypto assets lack regulation by the appropriate national authority.

Notable payment methods

• Local exchanges do not accept cards for crypto purchases, only bank transfers, including the real-time payment solution Transferencias 3.0.
• Bank transfers account for 81% of crypto payments and are expected to increase their share to 88% by 2026.
• Since crypto is still in a gray area regarding regulation, some Argentinians also purchase such currencies in P2P platforms, paying in cash to avoid the formality of purchasing via exchanges.

?? Brazil

Tech-savvy Brazilian customers have embraced cryptocurrency as a means to diversify their investments, leading the country to rank seventh globally in crypto adoption and second in Non-Fungible Token (NFT) adoption — trailing only behind Thailand.

Regulation has evolved significantly in the country, with the Cryptoassets Act going into force in June 2023. Aligned both with the demands of the sector and with a wider preference of Brazilian customers for fast payments, Pix is by far the preferred payment method for crypto.

Purchase and growth highlights

• The high volume of domestic transactions, which represent 86% of crypto purchases in Brazil, is driven by the initiative of international exchanges to either establish local entities or partner with local payment processors to offer Pix and align with the preference of local crypto buyers.
• Major global exchanges such as Binance, Coinbase, and Crypto.com have prioritized the Brazilian market, offering significant opportunities in such a huge market with high levels of digitization – and, in turn, pushing crypto adoption levels.
• Brazilians are seeking out alternatives for investment diversification, with tech-savvy sectors of the population eager to engage in the worldwide crypto movement.
• Local sporting organizations, including soccer clubs like Flamengo and Cruzeiro, are embracing cryptocurrencies and introducing “fan tokens”; sporting icons are also venturing into the metaverse through the creation and sale of NFTs.

Regulatory landscape

• The Legal Framework for Virtual Assets (Cryptoassets Act, or Law 14,478) entered into force in June 2023 with rules for the daily use of cryptocurrencies in financial transactions. It also regulates virtual assets and the activity of service providers, categorizing digital assets as securities.
• The Brazilian Securities and Exchange Commission (CVM) has oversight over this asset class.

Notable payment methods

• Pix is dominant, accounting for 85% of crypto transactions.?
• Brazilians tend to favor and trust local exchanges, so international players arriving in the country must be ready to deliver a local-like experience.

?? Chile

Cryptocurrency adoption has experienced significant growth in the recent history of Chile, driven by changes in the regulatory landscape, including the enactment of a specific law for the sector in 2023 – the so-called Fintech Law. Today, nearly a fifth of Chile’s adult population engages in crypto transactions, as a way to protect their savings from economic instability, to diversify investments, and as a more cost-effective alternative for remittances.

Purchase and growth highlights

• The main driver for crypto adoption is to protect savings in the face of economic instability and inflation.
• Chile’s economy slowed down in 2022, impacted by high interest rates and political uncertainty — inflation was above 10% in 2022 and, in 2023, sits at around 7.9%.
• Chileans are exploring alternatives for investment diversification, besides seeing cryptocurrencies as a cheaper and faster alternative to traditional remittances.

Regulatory landscape

• Crypto assets are regulated by the Fintech Law (Law No. 21.521), which came into force in the beginning of 2023 with the aim of promoting financial competition and inclusion in the country. It amends previous banking regulations by classifying crypto as a means of payment.
• The Central Bank of Chile is tasked with regulating the crypto industry to ensure its assets meet the minimum standards in terms of security, reliability, and acceptability.
• The Commisión para el Mercado Financiero (CMF) has oversight over crypto assets.

Notable payment methods

• Aligned with the overall trend across Latin America, bank transfers – including instant payment solutions – account for 69% of total payments.
• On the other hand, cards have a higher share (28%) than in other countries among Latam’s Top Six Markets.

?? Colombia

Even with a still-not-very-robust regulatory landscape for cryptocurrencies, Colombia’s government has maintained a favorable stance towards digital assets. There is a generally favorable atmosphere for cryptocurrency in the country, due to economic turbulence and soaring inflation, and also due to the country’s significant amounts of remittances from Colombians living abroad to their families back home, and vice-versa.

Purchase and growth highlights

• Cross-border transactions represent 65% of the market in Colombia. However, this share is expected to fall to 50% by 2026 as the local market matures, with domestic operations then accounting for the other half.
• Crypto-friendly regulations are a huge driver for the country’s crypto adoption levels. Besides, economic instability and high inflation lead to the use of crypto as a means of protecting savings.
• Colombia receives a significant amount of remittances from its populations living abroad, particularly in the United States, and crypto has become a preferred method for these transfers due to its speed and low cost.

Regulatory landscape

• Crypto assets are not yet regulated, but due to high adoption rates, the Colombian government has shifted to a more favorable stance toward the sector.
• The country approved a regulatory sandbox and presented a bill in parliament, inspired by Brazil’s Cryptoassets Act, to establish a framework for digital platforms operating in the crypto sector in Colombia.

Notable payment methods

• Bank transfers, including instant payment method PSE, represent 59% of all crypto payments in 2023.
• Instant payments and bank transfers will keep growing faster than cards, reaching a 65% share by 2026. However, as in Chile, cards also have a high share of payments (29%).

?? Mexico

Remittances are the main factor that contribute to the adoption of cryptocurrencies in Mexico, which has a robust regulatory framework for the sector. Mexico formally recognizes cryptocurrencies as digital assets, which allows them to be used for payments and transactions as well as purchase and investment options.

Purchase and growth highlights

• Remittances play a crucial role in boosting crypto adoption and growth, with Mexico being the world’s second largest destination for remittances – US$ 61.1 billion in 2022.
• Mexican cryptocurrency exchange Bitso became Latam’s first crypto unicorn with growth pushed mainly by capturing crypto remittances from the USA to Mexico.
• Domestic purchases account for 60% of the market and are expected to maintain their dominance, reaching a 75% share by 2026.
• This is not only because Mexico has a strong local player, the aforementioned Bitso, but also because international players either have a local entity or partner with local providers to offer solutions tailored to the Mexican market.

Regulatory landscape

• Mexico’s Fintech Law provides regulatory guidelines for electronic payments, crowdfunding, and digital assets — cryptocurrencies are officially recognized as digital assets in the country, which gives them legitimacy as a payment method.
• Mexico’s Central Bank Banxico has established the conditions that financial institutions need to follow to carry out transactions with virtual assets (Rule 4/2019).
• The Mexican government plans to launch a Central Bank Digital Currency (CBDC) by 2024, following the footsteps of Brazil and Peru.

Notable payment methods?

• Convenience store megachain Oxxo had a partnership with crypto exchanges that involved accepting cash for crypto purchases. In 2022, 20% of the purchases occurred within this arrangement, but the partnership ended in late 2022, reducing the amount of cash payments in crypto.
• By 2023, cash accounted for only 5% of transactions, and is expected to further decrease to less than 2% by 2026.
• Conversely, the share of bank transfers grew from 52% in 2022, to 62% in 2023, and it is expected to reach 67% of payments by 2026.

?? Peru

Peru has the lowest rate of cryptocurrency adoption in the Top Six Markets — this is partly due to the absence of specific regulations in the country, although a bill for the sector is currently being discussed in Congress. If these regulations do come into effect, Peru has the potential to become Latam’s fastest-growing crypto market. In the meantime, regulatory bodies have issued warnings about the risks associated with crypto assets.

Purchase and growth highlights

• Economic uncertainty and inflation, which hovered around 8% in 2022, are the main drivers for the – albeit still low – crypto adoption.
• Assuming that a regulatory framework will be implemented, Peru is expected to be the fastest-growing market for crypto in the Top Six Markets.
• Currently, 70% of crypto purchases are cross-border, but the domestic share is projected to reach 45% by 2026. After all, with regulations evolving, more players will likely join the market in partnership with local payment providers, pushing local players to grow.

Regulatory landscape

• Currently, Peru lacks specific regulations for cryptocurrency assets.
• The Central Reserve Bank of Peru (BCRP), the regulatory body for capital markets (SMV), and the institution regulating financial entities (SBS) have issued statements addressing the risks of acquiring crypto assets in the country.
• A proposed crypto bill (No 1042/2021-CR, or Framework Law for the Commercialization of Crypto Assets) aims to regulate companies offering digital assets and cryptocurrency services via technological platforms.
• The aforementioned bill grants Bitcoin the status of an “asset with accounting value” and places the primary responsibility on investors for their actions when dealing with digital assets. It also proposes the establishment of a public registry for crypto service providers and mandates the reporting of all suspicious operations to the Financial Intelligence Unit.

Notable payment methods

• Bank transfers are dominant, accounting for 87% of payments.?
• Domestic purchases, currently at 35%, are projected to rise to 45% by 2026 due to the expected approval of local regulations, which could enable new entrants to join the market and operate with the support of local payment processors.

What now??

With its Top Six Markets either regulated or in the process of regulating cryptoassets, Latin America boosts a considerable opportunity for cross-border crypto merchants. As the market becomes more and more mature, players adapted to the peculiarities of each local market and to the Latam scenario as a whole will certainly go further than the competition.

Now’s definitely the right time to look into the booming Latin American crypto market and start developing – or strengthening – your strategies for the region. As we have shown here, one of the most important aspects for that is creating a local-like payment experience, with the payment methods customers are used to and prefer to pay with, such as instant payments, domestic-only credit cards, and national alternative payment methods.

To boost your business in Latin America with the support of an expert local payments solution, click here to get in touch with our team and understand exactly how we can help!?