Why the crypto crash hits differently in Latin America

On a rainy Tuesday afternoon, the day before Bitcoin hit an 18-month low, 30-year-old Elisa Caletti walked into the Bitcoin Embassy in the Roma Norte neighborhood of Mexico City. The “embassy,” a crypto-themed bar, not a diplomatic institution, is home to one of the few bitcoin-compatible ATMs in the area. Even with bitcoin plummeting, Caletti wasn’t there to withdraw all the funds from it. She is holding on.

“There are always crashes,” Caletti said. Rest of the world. “You’re not always going to be on top.” He used the ATM to get some cash and left the bar, waiting for a carpool outside, next to a whiteboard drawing of an astronaut adorned with a Bitcoin symbol astride a rocket, Dr. Strangelove style. “See you on the moon,” read the caption below in English.

Since November, the market capitalization of all cryptocurrencies has fallen by 200%. While speculative-minded investors have watched its fall in horror from the United States, the response in Latin America, where cryptocurrency has increased its presence in the last two years, is more mixed. Risk assets offer a unique value proposition for the region, which has long been plagued by unstable economies and closed capital markets. Crypto entrepreneurs and enthusiasts accustomed to volatility or crowding out are taking a more optimistic view of the crash.

“Other countries take these bear markets as a big tragedy,” said Carlos Mijares, a 25-year-old freelance graphic designer and cryptocurrency user from Caracas. “We see and live an economy based on resilience.”

Omid Malekan, a crypto expert and adjunct professor at Columbia Business School, said the panic response to the US collapse ignores the variety of local realities in much of the world where people don’t have access to the US dollar. or stable banking systems. . “When many of the pundits, academics, and people like Warren Buffett in the United States criticize cryptocurrencies and Bitcoin, they often seem to come from a very privileged position, for lack of a better word.”

By the end of 2021, Bitcoin was booming, along with cryptocurrency-powered projects across Latin America. Mexico claimed the region’s first crypto unicorn with the Bitso exchange, in May 2021. El Salvador became the first country to adopt bitcoin as legal tender (with limited success), in September 2021. Venezuela, Argentina , Colombia and Brazil appeared among the top 15 countries ranked by cryptocurrency adoption in analytics firm Chainalysis’s 2021 global index.

As the Venezuelan economist Aarón Olmos from the Institute of Advanced Administrative Studies (IESA) said: Rest of the world, people in Latin America began turning to cryptocurrencies as a way to circumvent their unstable or stagnant economies. He said that in surveys he conducted with cryptocurrency users in Venezuela, the most common response was: “I’d rather have a digital asset whose price goes up and down than a currency whose only real trend is down, thanks to political economy.”

Venezuela and Argentina, both of which suffer from high inflation, offered particularly strong testing grounds as financial ecosystems where cryptocurrencies can be more attractive than government fiat. A Venezuelan private investor and cryptocurrency user, who spoke on condition of anonymity because discussion of his personal financial views could threaten his job, described cryptocurrencies as “the best option available so far,” given the bolivar’s instability and local scarcity. US dollars Venezuela’s annual inflation rate reached 686.4% in 2021.

That is not to say that Latin American investors are unscathed. With the recent collapse of the high-profile Terra project and the instability surrounding Celsius, cryptocurrencies have come back to earth, affecting merchants, businesses, and governments alike. Bitso laid off more than 10% of its employees, the Argentine exchange Buenbit laid off 45% of its staff, and the presidential administration of Nayib Bukele in El Salvador has lost roughly $50 million of its bitcoin investment.

Five traders who turned to risky projects, such as the Terra and Anchor protocol, which offered too-good-to-be-true interest rates, said Rest of the world who lost a large part or all of their savings.

“What is happening in Latin America is that there is a survival of the fittest.”

Yeibert Godoy, 26, lives in Caracas and started working for a bitcoin mining company in Venezuela during the pandemic. He receives his salary in Tether, a stablecoin pegged one-to-one to the US dollar. Although Tether has held its value during the decline, he watched the collapse of other cryptocurrencies, and especially TerraUSD (UST), with concern.

“I confess that the fall of the UST aroused some mistrust in me,” he said. Rest of the world. “There is a possibility that at some point [even stablecoins] will no longer function as a store of value to hedge against crypto market volatility.”

The crash has also highlighted internal divisions within the crypto community between libertarian ideologues, pragmatic savers, and sometimes corporate fraudsters.

Roberto Conte, a Mexican entrepreneur currently working on a Bitcoin lending tool called Kuze, described the doomed Terra as a “Rube Goldberg nonsense machine.” He said that despite the clear risks, people in precarious financial positions may fall for unproven projects. “They’re still trying to survive any way they can,” he said. He predicted that the recent volatility, and massive losses, will drive people away. “Adoption will go backwards,” he said, “but it will teach a lot of people about money and investing.”

Lorena Ortiz, director of the Mexico City Bitcoin Embassy, ​​acknowledged the anguish people were going through, but blamed the losses on a lack of financial education. “The problem is that scarcity and ignorance often push people into Ponzi schemes and scams with the promise of making lots of money faster and more effortlessly,” she said.

For Ortiz, who first got into crypto in 2017, Bitcoin is more than price: it represents a form of financial autonomy that assets that tend to devalue like the Mexican peso do not represent.

Leo Schwartz/Rest of the World

Some merchants in Argentina, where the government has just announced a monthly inflation rate of 5.1% and a projected annual rate of over 70%, said Rest of the world that Bitcoin is still the most stable option.

“If you are from Argentina, having bitcoins is now better than having pesos,” said Federico Sánchez, director of the Argentine crypto exchange called Kripton Market. Rest of the world. The exchange is located in a Buenos Aires coworking and events space called Espacio Bitcoin, which is dedicated to cryptocurrency and is located a few blocks from the city’s financial district. Sánchez sees the current collapse as an opportunity for projects like his to prove their worth after months of unbridled growth. “A market crash means speculators are gone: it’s the perfect time to create,” he said. Rest of the world.

Malekan of Columbia University said that in Latin America, the value proposition of cryptocurrencies as an alternative economic infrastructure will survive the crisis. “That trend will continue regardless of what prices do,” he said.

Conte, the Mexican crypto entrepreneur, was more direct. “What is happening in Latin America is that there is a survival of the fittest,” he said. “The fittest are those who understand the value of long-term thinking and stability.”

The Argentine merchant Elmer Curio, 19, thinks the same. He started putting his money in Terra because he offered the best monthly interest rate. When the currency crashed, he lost all of his savings: $166. “I felt really bad for a few days, but she hasn’t changed her mind,” he said. Rest of the world. “I just need to be more careful how I invest my money.”

Others were less optimistic. A Venezuelan father of two who said he had lost most of his savings in the accident refused to share details of his situation with Rest of the world for fear of continuing to hurt his family.

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