Will FTX’s ill wind reach the Global South? Maybe not
With the crypto world still reeling from the FTX collapse, Brazil recently passed legislation that legalized cryptocurrency use for payments in the country. How to reconcile this with all those declarations in the West that crypto is having its “Lehman moment”?
Brazil may have inadvertently revealed a cleft between the developed world and emerging markets with regard to the uses and misuses of cryptocurrencies. (The legislation still requires a presidential signature before it becomes law.)
Unquestionably, FTX’s Nov. 11 bankruptcy filing hurt crypto exchanges and other crypto-focused enterprises in Brazil, as well as many crypto-based companies all through Latin America (LATAM). But this latest gale in the crypto winter is generally not seen as an existential threat — as it is sometimes portrayed in Western media.
“It [FTX’s implosion] was certainly a net negative everywhere,” Omid Malekan, author and adjunct professor at Columbia Business School, told Cointelegraph. “But how much people are deterred is a function of whether they have access to stable currencies or reliable payment products.”
Many businesses in South America have felt pain from the crypto winter, David Tawil, president of ProChain Capital, told Cointelegraph. There's been a slowdown in trading activity, layoffs and a decline in venture capital investments. Yet crypto practitioners in South America “are still plowing ahead,” he said, because through much of the region, “crypto is functional, it has a real utility” in ways that are not fully understood or recognized in the West.
Stablecoins like Tether (USDT) and USD Coin (USDC) are much more important in countries like Argentina and Brazil where the government has implemented capital controls that limit the purchase of U.S. dollars. In Brazil, for instance, “There is only one currency — the local Brazilian real,” Thiago César, the CEO of fiat on-ramp provider Transfero Group, told Cointelegraph. “You can’t have dollar accounts. You can’t have euro accounts. So, in that context, a Brazilian stablecoin is very important for Brazilians.” Stablecoins enable users to participate in international markets.
“Unlike the more developed economies, where crypto is seen as an investment,” and the focus is obtaining profits from one’s holdings, César continued, “in Brazil, that’s actually not the case.” Sales of stablecoins like USDT, USDC, and the Brazilian Digital Token (BRZ), a token backed by the Brazilian real, account for about 70% of the nation’s crypto trading, he noted.
Moreover, even as cryptocurrency exchange FTX failed, “the reach of that failure did not really affect retail users in Brazil,” added César. By contrast, “if Binance had failed, then it would have been very problematic in Brazil — because a lot of people trade on Binance.”
Speaking from a ‘privileged position’?Generally speaking, cryptocurrencies play a much larger role in LATAM and other parts of the Global South than they do in the U.S. and Global North, Tawil said. The U.S. and European viewpoint can be “very myopic” at times. One has to live or work in places like Latin America to appreciate the difference. “There are people who never had a bank account, now trading. Argentina is mostly a cash society, and to see people dealing now in digital currency is quite amazing.”
“People in the West definitely speak from a privileged position when it comes to crypto,” Malekan said. He includes among the “privileged” those like Warren Buffet who argue there is no need for cryptocurrencies because traditional banking products and services like credit cards work just fine. “I guess it's never occurred to these people that a substantial portion of the global population, many of whom live in the Global South, do not have access to such services,” Malekan told Cointelegraph.
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Are the lessons being drawn from the FTX fiasco different in Brazil and the Global South, then, from those emanating farther north?
Possibly, but it varies on a country-by-country basis, answered Malekan. “Places that have capital controls are going to be more concerned about crypto services providers that are regulated and reliable because they can become a viable alternative financial system. In Western countries that have stable currencies and no capital controls the greater concern is fraud, money laundering and sanctions evasion.”
Still, some Western regulators appear to have had their worst fears confirmed with the FTX crash. A European Central Bank director general recently wrote, for instance, that Bitcoin (BTC) had uttered its “last gasp before the road to irrelevance.” Earlier in the year (following Terra’s meltdown) ECB president Christine Lagarde declared that cryptocurrencies are “worth nothing.”
“We cannot downplay the fact that the world’s second largest exchange in terms of traded [crypto] volume ceased trading overnight,” said Andrei Manuel, co-founder at Bit2Me, a Spanish cryptocurrency exchange. That said, “some financial authorities and mass media are taking advantage of the opportunity to discredit and attack Bitcoin and the industry in general.” As for Lagarde, she “may be nervous about the launch of their new model of digital money, the CBDCs [central bank digital currencies], and that this is an opportunity they cannot let slip away,” Manuel told Cointelegraph.
What Western critics sometimes fail to appreciate “is that the collapse of FTX has not affected the normal functioning of Bitcoin or crypto assets,” continued Manuel. “These have been affected in their price, due to a massive withdrawal of liquidity.” But Bitcoin blocks continue to be mined and blocks are added to the ledger regularly, without interruption. “Brazil will not be the first or the last jurisdiction to facilitate the use of Bitcoin,” predicted Manuel.
In any event, “regulators should not shut down to new and innovative financial mechanisms, such as crypto,” Fernando Furlan, partner at Furlan Associados Consultoria and former president of Brazil's blockchain association, told Cointelegraph. “But to the contrary, they should create the conditions necessary for the safety of the investors.”
Others believe the lessons drawn from the FTX fiasco may not be so different whether one regulates from the Global North or Global South. “It is likely that regulators will establish more rigorous rules for crypto projects,” Eloisa Cadenas, CEO of Mexico's CryptoFintech, told Cointelegraph. Moreover, if the crypto industry is going to be maintained, “it will have to be reinvented and restructured, and only those projects that have an interesting and relevant value proposition will be able to survive.”
Will others follow Brazil’s lead?One shouldn’t downplay the impact of FTX’s demise in Latin America, either, said Cadenas. Numerous LATAM companies “are liquidating up to 30% of their human talent,” and others are rethinking the use of business models, particularly in Mexico, El Salvador, Argentina and Brazil. Investment funds that leveraged FTX liquidity have gone bankrupt. “The blow has been worldwide. […] The collapse of FTX does not only affect the U.S. and Europe,” Cadenas said.
Still, it doesn’t shock Cadenas that, amid all the current uncertainty, Brazil would pass crypto payment enabling legislation. “It is not surprising because Brazil is the country with the highest adoption of crypto assets.” A recent government report found that more than 12,000 Brazilian companies reported crypto assets in their financial statements, she noted, adding:
“Therefore, it is something that sooner or later would happen, and we are going to see this more frequently in the laws of other countries; for example, El Salvador recently launched a proposed law to regulate digital assets.”El Salvador already has its well-known Bitcoin Law, of course, “but that does not apply to other crypto assets,” Cadenas added.
Will others follow Brazil’s lead? “It’s quite likely,” said César. “Brazil has solidified itself as a regional leader. So it is a benchmark, not only in crypto regulation, but also in the banking system in the region.” Here he was referencing Brazil’s popular Pix instant payment system, implemented in 2020, that has made local bank transfers “instant, free and available 24/7,” adding:
“Brazil is trying to project its influence across the region — not only exporting crypto regulations but also exporting its Pix system as well. Other countries such as Colombia are already reported to be interested in adopting a Pix-like local bank transfer system.”If the new Brazilian legislation is signed into law, as expected, some sort of government-issued license will probably be required to conduct crypto-related activities, said César. The central bank will determine many specific requirements, such as minimal capital needed to buy and sell crypto, minimum experience of directors, etc. The legislation as written lacks many key details.
Not all may be guided by Brazil’s example, however. On Dec. 5, Paraguayan lawmakers’ efforts to make Bitcoin mining a recognized industrial activity faltered as Paraguay's lower house failed to override a presidential veto of the initiative. The original bill was passed in July. Legislators might have been rethinking crypto matters in light of FTX.
‘Crypto is very resilient’All in all, cryptocurrencies, and especially stablecoins, are going to be a “game changer” for many people in the Global South, especially in countries like Argentina that make it very hard for people to buy dollars, said Tawil. “In the U.S, there aren't really hurdles to opening a bank account.” In the developing world, including much of Latin America and Africa, one’s financial options are often quite restricted.
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Cryptocurrencies’ uses can be myriad. In Argentina, crypto can be used as a mechanism to fight inflation, a way for people to access dollars, or just a means to internationalize their wealth, said Tawil. In Brazil, it can be an instrument to internationalize wealth — even if Brazil doesn’t have the same inflation problems as Argentina. “But it’s basically access to freedom,” Tawil added.
FTX may still set back the crypto industry for years globally, in César’s view. But “crypto is very resilient, especially when you see where it solves real problems.”