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Emerging markets drive global crypto adoption out of necessity, not speculation - Chainalysis

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(Kitco News) - U.S.-based blockchain analysis firm Chainalysis has released some preliminary findings from their 2023 Global Crypto Adoption Index report, which show that the Central and Southern Asia and Oceania (CSAO) region leads the way in crypto adoption, with six of the top ten countries – including India, Vietnam, the Philippines, Indonesia, Pakistan, and Thailand – located in the region.

CASO “hosts what may be the world’s most dynamic and fascinating cryptocurrency market,” Chainalysis said in a separate report. “Measured in raw transaction volume, CSAO is the third-largest crypto market we study, barely trailing North America and Central, Northern and Western Europe (CNWE), and accounting for just under 20% of global activity.”

The region also dominates when accounting for purchasing power and population in measuring grassroots adoption, they said. Decentralized finance (deFi) accounted for 55.8% of regional transaction volume in CSAO between July 2022 and June 2023, compared to 35.2% in the previous year-long period, and institutional adoption in the region is also on the rise.

Centralized exchanges account for the majority of web traffic in CASO, as is the case around the world, followed by gaming and gambling platforms, and decentralized exchanges. Peer-to-peer platforms are popular in countries like Pakistan and Vietnam, which have stricter capital controls.

While the reports show that CSAO is leading in terms of adoption and India leads the way in transaction volume, having received an estimated $268.9 billion in crypto assets during the time period studied, on the whole, “Worldwide grassroots crypto adoption is down,” they said.

Global index score by quarter. Source: Chainalysis

The global index score outlined in the chart above was generated by “summing all 154 countries’ index scores for each quarter from Q3 2020 to the present, and re-indexing them again to show adoption growth over time across the world,” Chainalysis said. “While there’s been a marked recovery since the doldrums of late 2022, around the time FTX imploded, grassroots adoption is still well off its all-time highs.”

While adoption is down in general, Chainalysis said there is “one crucial segment of countries where grassroots adoption has seen a much stronger recovery than anywhere else: Lower middle income (LMI) countries.”

“LMI is the only category of countries whose total grassroots adoption remains above where it was in Q3 2020, just prior to the most recent bull market,” the report said. “Taken together, LMI countries have seen the greatest recovery in grassroots crypto adoption over the last year.”

Index score by country income bracket. Source: Chainalysis

Chaialysis said this “could be extremely promising for crypto’s future prospects” as LMI countries account for 40% of the global population, which is more than any other income category.

“If LMI countries are the future, then the data indicates that crypto is going to be a big part of that future,” they said. “That, combined with the fact that institutional adoption – primarily driven by organizations in high-income countries – continues to gain steam even during the ongoing crypto winter, paints a promising picture of the future.”

In a report outlining the results from Sub-Saharan Africa, Chainalysis said the region “has the smallest crypto economy of all regions, accounting for 2.3% of global transaction volume between July 2022 and June 2023. During that time period, the region received an estimated $117.1 billion in on-chain value.”

Centralized exchanges accounted for more than half of all transaction volume in Sub-Shaharan Africa, and the market “also appears more retail-driven than most, with a larger share of transaction volume coming in transactions under $1 million in value compared to most other regions,” Chainalysis said.

While the region consistently ranks as one of the smallest cryptocurrency markets, the report said “crypto has penetrated key markets and become an important part of many residents’ day-to-day lives,” especially in Nigeria, “which ranks second overall on [the] Global Crypto Adoption Index and also leads the region in raw transaction volume.”

Sub-Saharan Africa: Countries by cryptocurrency received. Source: Chainalysis

Bitcoin (BTC) accounted for 9.3% of all crypto transactional volume in Sub-Saharan Africa, which Chainalysis said may point to residents in the region “turning to so-called digital gold for an alternative store of value.”

“Many countries in the region have struggled with rising inflation and debt, making cryptocurrency an attractive means of storing value, preserving savings, and attaining greater financial freedom,” they said.

Stablecoins are also rising in popularity in the region as they “generally see less volatility than Bitcoin, whose price is well off all-time highs,” the report said.

G20 leaders call for swift implementation of crypto asset regulations

As for what has been driving adoption and transaction volumes in Sub-Saharan Africa, Chainalysis pointed to several regulatory decisions in countries like South Africa, Kenya, and Mauritius.

“The increased regulatory clarity provided by the flurry of recent legislation may be helping Africa’s local cryptocurrency industry,” they said. “Many of the most important crypto regulations enacted by Africa’s biggest countries came around early 2023.”

Growth in volume sent to local exchanges vs. global exchanges. Source: Chainalysis

“The consumer safety afforded by better regulations, the confidence those regulations give consumers, and local crypto businesses’ ability to comply with those regulations may be part of why local African exchanges have been outpacing international competitors on growth within the region since early 2023,” Chainalysis said.

The report concluded by saying the key lesson learned is similar to what was learned in previous studies of emerging markets. “While residents of wealthier nations may buy and sell more cryptocurrency than those of emerging markets, the latter has a greater day-to-day need for cryptocurrency, very much in line with the original vision for Bitcoin and the sector at large.”

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