Last year, cryptocurrencies reached a “tipping point”, according to Gemini’s 2022 State of the World Crypto Report, “going from what many considered a niche investment to a class of established assets”.
According to the report, 41% of crypto owners surveyed globally purchased crypto for the first time in 2021, including more than half of crypto owners in Brazil at 51%, Hong Kong at 51%, and India. at 54%.
The study, based on a survey of 30,000 adults in 20 countries on six continents, also demonstrated that inflation and currency devaluation are strong drivers of crypto adoption, especially in emerging countries ( ME):
“Respondents in countries that have experienced a 50% or more devaluation of their currency against the US dollar in the past 10 years were more than 5 times more likely to say they plan to buy crypto in the coming year than those countries that have experienced less than 50% currency devaluation.
Brazil’s currency, the real, saw a 218% devaluation – suggesting high inflation – against the US dollar between 2011 and 2021, and 45% of Brazilians surveyed by Gemini said they plan to buy crypto in the coming year.
South Africa’s currency, the rand, has seen a 103% devaluation in the past decade – second only to Brazil among the 20 countries surveyed – and 32% of South Africans are expected to own crypto next year. The third and fourth most devalued or inflationary countries, Mexico and India, showed a similar pattern.
In comparison, the currencies of Hong Kong and the United Kingdom have suffered no devaluation against the US dollar in the past 10 years. Meanwhile, relatively few surveyors in these countries, 5% and 8%, respectively, said they were interested in buying crypto.
What conclusions can we draw from this? Noah Perlman, chief operating officer at Gemini, sees different use cases for crypto, often depending on where one lives. He told Cointelegraph:
“In countries where the local currency has been devalued against the dollar, crypto is seen as a ‘necessary’ investment, while in the developed world it is still widely seen as ‘nice to have’.”
Crypto as a replacement currency
Winston Ma, former managing director and head of North America at the China Investment Corporation and now an assistant professor at New York University School of Law, makes a key distinction between an asset that functions as a hedge against inflation and one that is used as a currency replacement.
According to him, cryptocurrencies like Bitcoin (BTC) have not yet reached the status of “hedge against inflation”, unlike gold. In 2022, they behaved more like growth stocks. “Bitcoin is more closely correlated to the S&P 500 index – and Ether to NASDAQ – than gold, which is traditionally considered an inflation hedge asset,” he told Cointelegraph. But things are different in some parts of the developing world:
“In inflation-battling emerging markets like Brazil, India, and Mexico, inflation may be the primary driver of cryptocurrency adoption as a ‘currency replacement.'”
“It is undeniable that at the beginning and still today, the adoption was driven by countries where monetary stability and / or access to appropriate banking services have been an issue”, Justin d’Anethan, director of institutional sales at Amber Group – a Singapore-based digital asset firm – told Cointelegraph. Put simply, developing countries are more interested in alternatives to easily degraded fiat currencies, he said, adding:
“On a notional USD basis, the largest flows could still come from more developed institutions and countries, but the growing number of actual users will likely come from places like Lebanon, Turkey, Venezuela and India. Indonesia, among others.”
Sean Stein Smith, an assistant professor in the Department of Economics and Business at Lehman College, told Cointelegraph that he was not particularly surprised by the survey results, “since inflation is one of the factors which has and continues to drive the adoption of Bitcoin and other crypto assets all over the world.
But, that remains just one of many factors, and often different regions have distinct factors driving adoption, Stein Smith said. “On a fundamental level, investors and entrepreneurs are increasingly recognizing the benefits of crypto assets” as an “instantly accessible”, traceable and profitable trading option. In other places, “capital gains and potential returns from crypto assets” are driving crypto adoption.
There are regulatory issues regarding cryptocurrencies around the world, particularly in the Asia-Pacific and Latin America regions where 39% and 37% of survey respondents, respectively, said that “legal uncertainty around cryptocurrency,” tax issues and a general education deficit could affect adoption, the report noted. In Africa, for example, 56% of respondents said more educational resources to explain cryptocurrencies were needed.
“It’s not just inflation, it’s a bigger issue of empowering our young people to have a better life than their parents and not be afraid of failure or allegiance to markets or legacy financial products,” Monica Singer, head of South Africa at ConsenSys, told Cointelegraph. Also, “the problem of money and remittance addiction is huge in Africa and the addiction to social grants.”
The future of money?
Overall, Brazil and Indonesia were the top two cryptocurrency-owning countries in the survey. Forty-one percent of respondents in each of these countries said they own crypto. Comparatively speaking, only 20% of Americans surveyed said they own cryptocurrency.
People living in markets affected by inflation are more likely to view cryptocurrencies as the future of money. According to the survey:
“The majority of respondents in Latin America (59%) and Africa (58%), where many have experienced long-term hyperinflation, say crypto is the future of money.”
The strongest support for this view was seen in Brazil at 66%, Nigeria at 63%, Indonesia at 61% and South Africa at 57%. The least believers were in Europe and Australia, including Denmark at 12%, Norway at 15% and Australia at 17%.
Will the conflict in Ukraine have an impact on adoption?
The survey was conducted before the Ukraine-Russia war. Will this devastating conflict have a long-term impact on the global growth of crypto adoption?
“The war between Ukraine and Russia certainly led to crypto being introduced directly into the mainstream conversation,” Stein Smith said, “especially since the Ukrainian government directly solicited more than $100 million crypto donations since the start of the war,” further adding:
“This concrete demonstration of the power of decentralized money has the potential to spur broader adoption, broader policy debate, and increased use of crypto as a medium of exchange in the future.”
But the war may not affect all parts of the developing world. “The war in Ukraine has no impact on demand for crypto in Africa,” Singer told Cointelegraph. Other factors weigh more heavily. “Inflation, yes, but also the lack of trust in government in many countries in Africa and the fact that we have a young population that is very knowledgeable about using cellphones and the internet.”
The success of Mpesa in Kenya, for example, has had a big impact on the continent and will no doubt help accelerate crypto adoption. It “links directly to the spirit that exists in Africa of making a plan when everyone you trust fails you,” she said.
On the other hand, Ma sees the Ukraine conflict as a kind of crisis control for cryptocurrencies. “The Ukraine-Russia war served as a stress test for the cryptocurrency payment rail amid global uncertainty, especially for residents of emerging markets,” he told Cointelegraph, adding:
“We might expect the biggest future gains in crypto adoption to be found in emerging markets like these.”
Inflation and currency devaluation are persistent concerns in many parts of the world. In these affected regions, Bitcoin and other cryptos are now seen as candidates for the replacement of money – the “future of money”. This is generally not the case in the developed world, although this could change, especially with more regulatory clarity and education. As d’Anethan told Cointelegraph, “It seems that even Western countries are waking up to inflation and the impact it will have on liquidity.”