Bitcoin: On The Edge Of Mass Adoption

Q&A with Elena Obukhova, Founder & CEO at FAS | Fintech Advisory Services

1. What is the reason behind the adoption of Bitcoin as legal tender in Latin America? Why this region?

Latin America is a very special region where the majority of countries went through multiple severe financial and political crises with the government failing to help people. Different regulations and limits on foreign currencies, especially the US dollar, led to the rise of the Cash Economy that was covered in "Bitcoin as a Legal Tender: What that Means for All of Us?". People find crypto and particularly Bitcoin the only way to protect their savings from inflation and undesired government actions.

Answering the question, Bitcoin was already a part of the Cash Economy and widely in use by people in Latin America and now the governments are bringing it to the public sector. Countries failing to maintain and "save" the national currencies from increasing inflation instead can now adopt a currency that isn't dependent on their local politics. El Salvador, for example, already used the US dollar as a national currency. However, the US dollar doesn't address the needs of the underserved population, for example, remittances. The remittances market is huge in Latin America and crypto allows sending money with low commissions compared to traditional means to remit.

The current efforts on introducing Bitcoin as a legal tender seems to be quite logical after familiarizing yourself with local markets. Latin America was already the leading region on Bitcoin adoption, it was widely in use and now it's only becoming official.

Such adoption was caused by numerous crises and political actions. For example, in 1982, the ban of US-dollar accounts and conversion of the funds to pesos in Mexico caused a 30% immediate loss for the account holders because of the currency exchange. People were forced into such loss and that still remains in their memory.

Apart from protecting funds from inflation, Bitcoin opened new horizons for the unbanked population as now they could easily transact with digital money instead of using cash. It also allowed accessing other financial products like saving and lending that are unavailable for the unbanked.

Local businesses were also using Bitcoin and other cryptocurrencies for overseas and also internal transactions. Commissions are much lower and the speed of transaction is much faster than with the bank especially for overseas transfers. Some countries have a lot of limitations and uncertain regulations for cross-border payments that put a lot of extra trouble on businesses as they simply can't do a settlement with the buyers or sellers or partners. Cryptocurrency resolves this helping businesses easily transact with each other.

2. What does having Bitcoin as a legal tender change for local businesses?

I already briefly mentioned how local businesses in Latin America are benefiting from Bitcoin. Having Bitcoin as a legal tender makes all these transactions completely legal and official. It also opens the same seamless opportunities to the rest of the businesses that couldn't do unofficial transactions before and had to deal with large commissions, delays, and a regulatory nightmare for cross-border payments.

You also don't need a special POS to accept Bitcoin at your local store compared to additional complexities arising with bank cards. So everyone can now pay and be paid in Bitcoin regardless of their gender, race, financial status, residential status, and anything else.

Local stores located in risky and dangerous zones don't need to worry about sending cash away every day or even a few times a day to avoid robberies. They can now have money stored digitally with additional and simple security to avoid such incidents.

If we assume developed countries adopting Bitcoin as a legal tender, then there also will be some big changes for the local businesses. Have you ever tried to open a business account? It can be easy for some and can be an absolute nightmare for others. Neobanks partially joined the game to change the rules, however, there're still a lot of unpleasant factors for local businesses that cannot be eliminated, e.g. commissions, transaction speed (wire transfers), conversion and exchange fees, POSes, etc. Lending and borrowing as a business (even if it's a small amount) can also be a challenge. Cryptocurrencies are on their way to address these needs.

3. Will other countries follow Latin America’s lead?

I always said that Latin America would be the region that drives the mass adoption of Bitcoin further. I also said that developing markets in general are the ones that will easily catch up and will quickly jump on board. We see Paraguay, Panama, and Tanzania planning to join El Salvador. Mexico is also getting more crypto-friendly supporters in the government. However, after the controversial Fintech Law of 2018, I would not expect Mexico to adopt Bitcoin as quickly as other countries in Latin America. Argentina would benefit from imposing such a law and there were rumours about actually considering it. Especially, taking into account how large the Bitcoin OTC market is in Argentina.

Africa is not a surprise either. I was already covering earlier in "Bitcoin as a Legal Tender: What that Means for All of Us?" that Nigeria, for example, has very interesting cash-based financial products for the underserved. However, cash has its limits and requires a longer time. Cryptocurrencies bring more convenience and financial inclusion to the community.

Personally, I believe that mass adoption is right around the corner. If we have the developing world adopt Bitcoin as a legal tender, it will already be a necessity for the developed countries to follow. When? It's not certain yet, but the speed of other countries discussing and joining El Salvador is tremendous.