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Cryptocurrencies, and Bitcoin in particular, are increasingly becoming a feature of the modern financial market. The possibilities that arise from this technology have driven most of their current market capitalization, which will likely continue to be the case until they achieve price stability and market acceptance, forecasts PwC.
The disruption of the traditional financial market, propelled by cryptocurrencies, has deepened due to the wider use of big data analytics, decentralized payments, peer-to-peer platforms, electronic transfers and mobile access to financial services. These tools have changed the way people save and spend. While their role in disrupting the market is pronounced, they are still seldomly used by individuals.
Latin America has historically depended on cash for payments and transactions. The region has still a lot of room to grow overcome in terms of bank penetration and financial services, explained Javier Martínez, Chief Product Officer, Bitso in a previous article in Mexico Business.
The traditional financial system ruling Latin America has proven to be non-inclusive and to perpetrate economic inequality. For example, only 47 percent of Mexico’s population has a bank account, according to the Mexican National Institute of Statistics and Geography (INEGI). The bulk of the population that does have access to financial services lives in urban areas that have a medium to high level of income — the population residing in cities is 9.3 percent more likely to perform banking operations than those in rural areas. These data points are comparable to other countries in Latin America, where in aggregate 85 percent of transactions are carried out in cash. This is compounded by further deficiencies in financial education, which inhibit people from tracking expenditures, increasing their savings and, ultimately, accumulating wealth.
As in every other industry, tech is offering a democratization of services. From financial to health services, digitalization can lead to accessibility. In the financial sector, this democratization is being brought by cryptocurrencies.
Blockchain technology is what makes cryptocurrency such an attractive solution. This is a network or a distributed ledger that allows two parties to make a transaction without an intermediary. The latter has been shown to have the potential to disrupt a wide variety of transactions. Intermediaries are also a core of the traditional payments system as stocks, bonds and other financial assets need a trusted third party to provide verification of the transaction.
Cryptocurrencies have boomed in the last couple years and now are available all over the world. They have fewer intermediaries and lower costs, thereby creating greater financial inclusion. Additionally, they claim to be more efficient than traditional financial methods.
Cryptocurrencies could play an important role in countries that have been troubled by the regressive effects of inflation and capital controls, such as Venezuela and Argentina, explains Adriana Villaseñor, Corporate Development Lead, Bitso in Mexico Busines Forum 2021 Echo. In these countries, using cryptocurrencies as a store of value can help bypass the erosion of purchasing power. This can be accomplished not only via commonly known crypto assets such as bitcoin, but also through stable coins, which are less volatile and enable exposure to traditional fiat currencies. Furthermore, as a borderless means of exchange, cryptocurrencies also offer an alternative to interact with the global economy.
The adoption of bitcoin has been exponential; it grew by 881 percent just last year, mostly through the use of P2P payments, according to Villaseñor. Stable coins, which are those whose value is tied to a fiat currency, offer the benefits of cryptocurrencies with the characteristics of fiat currencies, so users can be sure of their regulatory status. “Stable currencies allow one to open accounts, in dollars for example, using less expensive and faster global transactions,” explains Villaseñor.
Due to its market success, Bitso has become a leader in this market. Its inclusive solutions have allowed them to build a 3-million-user strong community. It is the largest and most liquid exchange, offering the best prices and user-friendly products, said Villaseñor.
“Investors are increasing their trust in cryptocurrencies and immediately turn to us as a leading option, we lead the C Series investment round of Tiger and Coatue, which will be used to our new presence in Brazil,” said Villaseñor.