Cryptocurrencies are fast becoming a fact of daily life in developing countries.

A software developer in Lagos, Nigeria’s commercial centre, sends an invoice to a customer in London and gets paid in bitcoin, skipping the expensive banking system and the cheap official conversion rate of the naira currency. A dentist in Sao Paulo, Brazil, invests his monthly money in the second most popular exchange-traded fund (ETF) on the local market, which holds a portfolio of cryptocurrencies. Vietnam, in southeast Asia, has the most significant rate of crypto adoption in the world due to its citizens’ and companies’ penchant for bitcoin and other cryptocurrencies as a medium of investment, commerce, and transaction.

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Financial professionals in developed countries often regard cryptocurrencies with scepticism, seeing them as the purview of overenthusiastic “crypto bros” and a highly speculative and risky trend that is certain to fail. Officials in the United States and Europe have issued dire warnings about the risks of trading cryptocurrencies.

However, there are indications that crypto stealthily establishes deeper roots in the poor world. Cryptocurrency usage is rapidly becoming commonplace, especially in countries with a history of financial instability or where hurdles to obtaining conventional financial goods like bank accounts are significant.

Kim Grauer, director of research at Chainalysis, a leading data company in the sector, explains that while everyone was focused on Tesla CEO Elon Musk’s tweets and which institutional investors and CEOs were saying what they thought about bitcoin, a “really powerful” story was unfolding in emerging markets around the world.

An alternative to weak currencies:

Cryptocurrencies thrive in emerging economies because local systems typically fall short. Too frequently, national currencies in certain emerging nations fail to live up to expectations as a store of value, a medium of exchange, and a unit of account. They are less appealing due to volatile inflation and currency exchange rates, inefficient and overpriced banking systems, financial constraints, and regulatory uncertainty, particularly the presence or threat of capital controls.

Example: Nigeria, the most populated nation in Africa. High unemployment, unstable currency transactions on the black market, and capital restrictions are everyday challenges for the country’s restless young people. A World Bank-backed power plant that supplies one-tenth of Nigeria’s energy almost went into default when the price of oil, the country’s principal export, plummeted during the epidemic and severely restricted dollar availability. The shortage of available funds is an ongoing problem for everyone involved in transferring remittances or collecting payments from clients.

According to Ray Youssef, CEO of Paxful, a peer-to-peer cryptocurrency exchange that facilitates direct trade between users, “when you touch boots on the ground in Africa, specifically Nigeria, and talk to people about their everyday challenges with money, you see that it is almost unfathomable to us in the west to imagine.” When a user purchases using a payment method such as a bank transfer, mobile money, or gift card, the platform will hold the bitcoins in an escrow account until the buyer receives their funds.

One-third of the company’s customers are located in Africa, with 1.5m users (an increase of 83% from the previous year to June) in Nigeria alone. Direct competitor, Most of LocalBitcoins’ users come from emerging economies, including Africa, Latin America, and Russia.

The average individual investor buys less than $100 worth of cryptocurrency. In contrast, merchants often settle bills totalling thousands of dollars and financial services companies founded on these platforms employ armies of people. Since the foreign exchange rules make it difficult for small businesses without deep pockets to participate in international trade, “there is a lot of commerce going between China and Nigeria, importation of items using bitcoin,” adds Grauer.

More mainstream investment:

There is a lot of speculative fervour in some regions of the developing world, particularly in middle-income nations, about bitcoin, just as there is among their counterparts in wealthy economies.

However, crypto investing has already made more significant inroads into the financial mainstream in several developing nations than in developed ones.

The development of cryptocurrency exchange-traded funds (ETFs), through which investors may receive exposure to the prospective profits and losses of bitcoin and others without personally holding any, has yet to be approved by authorities in the United States or the United Kingdom. This year, Brazil joined a tiny group of nations that provide exchange-traded funds (ETFs) for digital currencies.

This year, Hashdex Asset Management debuted three crypto exchange-traded funds (ETFs) on the Sao Paulo stock market, and these funds already have more than 160,000 shareholders.

The HASH11 fund is the company’s flagship product; it mirrors an index built in collaboration with Nasdaq and based on a selection of cryptocurrency exchange-traded funds. It is the second most held exchange-traded fund (ETF) in market capitalization and charges a management fee of 1.3% on its $421m net assets.

 

 

 

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