What Does Market Volatility Say About Cryptocurrencies?
In mid-March, the value of cryptocurrencies plunged as financial markets around the world were roiled amid the coronavirus pandemic. While several asset classes saw severe declines, cryptocurrencies were hit especially hard, with Bitcoin plunging by some 50 percent since mid-February. What does the recent volatility in digital currencies reveal about them, and how will it affect their use in Latin American countries such as Argentina where they have been growing in popularity? How is policy on digital currencies developing in the region? How is the use of digital currencies affecting banks and other traditional financial services providers in Latin America and the Caribbean?
Prince-Alex Iwu, law clerk, and Christian F. Schoepp, international consultant, at Diaz, Reus & Targ, LLP: “Digital currencies’ volatility makes them an inadequate place to store value—a fundamental function of most currencies. Whereas the volatility of gold and other major currencies average around 1.2 percent and between 0.5 percent and 1 percent, respectively, the volatility of Bitcoin for the latest 60-day estimate is 7.49 percent. Latin America has a great affinity for the use of digital currency. High inflation rates (an average of 10 percent in Argentina since 2012, for example) and abysmal growth (0.7 percent GDP growth for 2020 in Latin America) will keep the demand for digital currencies stable, if not increase it as a poor but less-regulated substitute for the dollar. The data shows, according to a 2019 Statista survey, that Brazil, Colombia, Argentina, Mexico and Chile are among the top 10 users of digital currency. Resistant to government foreign exchange policy, and less volatile than inflation in many Latin American countries, many Latin Americans will continue to look to digital currencies for relative stability. There is a move toward…”Read More
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Covering Latin America’s banking and insurance sectors, remittances trends and data, micro lending issues, new technologies in the industry, anti-money laundering regulations, and much more, the Inter-American Dialogue’s biweekly Financial Services Advisor, a sister publication of the Latin America Advisor, gives readers fresh insight and diverse viewpoints from financial sector leaders. To subscribe or for more information, contact Erik Brand, publisher of the Advisor, at email@example.com.