Bitcoin has been making its way further into the mainstream this year as the price of the flagship cryptocurrency has soared. While the price is off its peak of more than USD 64,000, the bitcoin bulls are still optimistic about the trajectory of the market for the near future. A couple of key catalysts for the bullish outlook are stemming from the Latin American region. In Mexico, one cryptocurrency startup just achieved unicorn status, while El Salvador is looking to make bitcoin legal tender.
In Mexico, a bitcoin trading platform called Bitso has recently attracted USD 250 million to its coffers in a funding round that catapults the startup’s valuation above USD 1 billion, giving it the coveted and rare unicorn status in the country.
Given the emerging nature of the cryptocurrency and blockchain space, being crowned a unicorn is a major achievement and a testament to the willingness of venture capitalists to direct funds in the direction of the bitcoin market. El Salvador, meanwhile, has become the talk of the town after announcing that it wants to make bitcoin a legal payment method.
El Salvador’s Bitcoin Push
El Salvador has been a bright spot in the cryptocurrency market even as the bitcoin price has fallen from its highest level of the year. During a bitcoin conference in Miami, Fla. in early June, El Salvador President Nayib Bukele became the main event when he announced via a video that the country is looking to make bitcoin legal tender.
The government has teamed up with Chicago-based blockchain startup Strike to prepare the payment infrastructure for the shift to digital currencies. President Nayib touted the adoption of bitcoin as legal tender as key to streamlining the process for the Salvadoran diaspora living abroad to send remittances to households in their home country.
Remittance payments are a major part of the country’s economy and represent almost one-quarter of its GDP, affecting some 360,000 families. Migrants sent USD 5.92 billion in remittances to El Salvador during the pandemic year. The flow of money transfers to Salvadoran families slowed down at the height of the pandemic, mainly April 2020 when remittances plummeted 40%, before picking up again mid-year.
El Salvador’s bitcoin push is facing some potential regulatory hurdles from the very organization that it looked to for help during the height of the pandemic. The International Monetary Fund (IMF) is not sold on the Latin American nation’s plans to make bitcoin a legal payment method, saying that it is worried about the legal and economic ramifications. IMF officials will continue to engage with Salvadoran officials about the bitcoin initiative.
Meanwhile, the bitcoin proposal could throw a wrench into a separate agreement between El Salvador and the IMF in which the regulatory body was poised to provide a USD 1 billion loan program to the country. The IMF also provided emergency funding to the nation during the pandemic year separate from the loan that it has most recently requested.
While there are still regulatory hurdles that El Salvador will have to jump through in order to make this change, the sentiment is viewed as being extremely bullish for the bitcoin price. Not only that, but market watchers suggest that Central America’s smallest country has the potential to influence other nations for bitcoin adoption.
Sustainable Bitcoin Mining
El Salvador not only is looking to strengthen bitcoin’s use case as a payment method, but it also wants to help solve one of the issues that the cryptocurrency industry is facing. El Salvador, which is known as the land of the volcanoes, has offered to use its resources to help make the process of mining more bitcoins more environmentally friendly.
Bitcoin mining, or the way by which transactions are completed on the blockchain and new bitcoins are created, is an energy intensive process. After Tesla CEO Elon Musk recently called bitcoin mining out for its carbon footprint, as it typically relies on dirty fossil fuels such as coal to get the job done, El Salvador is swinging back. El Salvador has stepped in and is exploring the possibility of selling volcano-fueled power to miners as an energy efficient way to mine bitcoins.
According to social media accounts, El Salvador’s decision to make bitcoin a legal payment option started with local communities who for the past couple of years have been working to get local storefronts to accept bitcoin payments on an individual basis. This effort has since blossomed, and industry leaders like Anthony Pompliano, who is behind Pomp Investments, are expecting that other countries will follow in the footsteps of El Salvador.
Mexico’s Bitcoin Strides
Mexico, where cash is the primary payment method, is also experiencing greater bitcoin adoption. To that end, Bitso, a Mexico City-based cryptocurrency trading platform, has become one of the country’s latest unicorn startups after reaching a valuation of more than USD 1 billion.
Bitso raised USD 250 million in a Series C funding round with a valuation of USD 2.2 billion attached, thrusting the startup into unicorn status. Bitso attracted several notable venture capital firms to the round, including Panter Capital, Tiger Global, Paradigm, Coatue, Valor Capital Group and QED. As of year-end 2020, Bitso had more than 1 million users mostly across Mexico and Argentina.
While Bitso is considered the most popular cryptocurrency trading platform in the region, it has not been able to escape scandals that can accompany this loosely regulated market altogether. Bitso was reportedly the trading platform of choice for some bad actors participating in money laundering among drug cartels looking to stash their funds. But Mexico is looking to strengthen its rules to make it more difficult for criminals to use bitcoin.
Mexico is looking to create a regulatory framework by which cryptocurrency and blockchain startups can operate, which has the potential to give venture capitalists even more confidence to back these startups. Mexican Congressman-elect Eduardo Murat Hinojosa has said that he plans to introduce a legal framework for cryptocurrencies to the lower house of Congress.
Latin America and Bitcoin
As the Latin American region begins to make bitcoin adoption more pervasive, the populations of these countries are gaining exposure to a new way to create and store wealth. Cryptocurrencies like bitcoin remain a volatile asset class where the price can swing dramatically in a short period. Compared to the hyperinflation and slow economic growth that countries in the region are experiencing, however, bitcoin offers them hope for technological innovation, more job opportunities and greater financial inclusion that has been missing.
About the Author
Gerelyn Terzo is a writer at Sharemoney, a money remittance service that is passionate about improving the lives of immigrants. The granddaughter of an Italian immigrant from the town of Teora whose first steps in the U.S. were on Ellis Island, Gerelyn resides in New Jersey.