- Among the main countries to receive remittances in cryptocurrencies were Venezuela, Argentina, Brazil, El Salvador, and Mexico.
- The exponential growth in the demand for crypto remittances has awakened government appetites for taxes in the regions seeking to retain part of the money.
Over the last year, remittances for cryptocurrencies have grown exponentially, by up to as much as 900% globally, including several countries in the region of South America, such as Venezuela, Argentina, Brazil, El Salvador, Honduras, Costa Rica and México, according to data from platform of exchange Coinpay.cr, as cited by Forbes.
"Remittances and cryptocurrency transactions have grown between 800% and 900% in a single year," says Jorge Pasapera, founding partner of Coinpay.cr. "If you know how to have a good approach and the country promotes it in the right way, it can be widely accepted as it is easier than resorting to traditional systems," he adds.
Most of the remittances to these countries were received from the United States, which is home to the highest volume of immigrants on the planet. From the U.S. alone, transfers of remittances to Latin America quadrupled, rising from approximately 100 million dollars per month to $400 million between April 2020 and October 2021, according to Chainalysis‘ estimates.
The use of cryptocurrencies has been a major facilitator of these transfers due to the benefits they offer, especially in terms of cost savings in some cases. Additionally, Latin America has widely adopted cryptocurrencies due to their utility and ease of access from a commercial and labor point of view.
Unsurprisingly, the most recent statistics place three Latin American countries in the top ten tanking of economies that use cryptocurrencies the most. In the list the countries representing LATAM, Venezuela, Argentina and Colombia appear at the top, Statista highlights.
Crypto as an Alternative to Money Transfers
Chainalysis studies indicate that crypto has become an alternative for money transfers from larger economies, such as the U.S. and Europe, to Latin America. But they also provide substantial savings by circumventing the higher transfer costs arising from bank commissions.
As a result, there has been double the incentive for people when it comes to sending and receiving remittances in cryptocurrencies, instead of in traditional fiat money. This is especially due to the fact that South America closed out 2021 with high levels of annual inflation (7.2%), the price growth in Venezuela over the year was 686%, Argentina’s 51%, and Colombia’s 5.62%.
Citizens are trying to safeguard the value of their money by holding their savings in crypto assets, and especially in stablecoins like USDT, USDC, and others. Similarly, others use digital currencies such as Bitcoin, Ether or Ripple XRP to pay or receive salaries.
Difficulties with the Use of Cryptocurrencies in Remittances
Sending cryptocurrency remittances to Latin America also has its share of difficulties. Therefore, it is advised that, before carrying out operations with crypto, senders and receivers should do due diligence to avoid scams and theft.
Pasapera advises users to take care when choosing where to buy crypto. Likewise, they should take its hallmark volatility into account, and with whom the purchase – sale operations are carried out in order to avoid the aforementioned possible scams, or unintentionally exchanging cryptocurrency savings at a lower rate.
It has been pointed out that some of the difficulties observed with the use of cryptocurrencies for sending remittances have been their high costs, and the occasional delays in completing transactions.
There are some users who have had to pay between 15% and 20% more than the market price, says Pasapera. Others have had to wait up to three days to receive the crypto, while ATMs charge around 10%, they say.
On the Flipside
- Given the growth in the sheer volume of remittances, and the rise in the use of cryptocurrencies, Latin American governments are taking out accounts, seeking to cash in on crypto transactions to increase their income.
- The Venezuelan government recently approved the ‘Law on Large Financial Transactions,’ which also covers some small operations as well) carried out in foreign currencies or crypto. The tax to be collected will range from between 2% and 20%, depending on the transaction.
Why You Should Care
- Venezuela receives between $3 billion and $4 billion annually in remittances, which represents around 5% of the country’s GDP.
- Due to the growing use of cryptocurrencies and the increase in crypto capital flows, digital assets look set to become a permanent source of income for governments in Latin America.