Indonesia, Brazil lead cryptocurrency ownership globally as currency devaluation, inflation spur adoption, survey shows

Indonesia and Brazil top global list of 20 markets in cryptocurrency adoption, survey by cryptocurrency exchange Gemini shows
Respondents in countries that have experienced high currency devaluation were more than five times as likely to buy digital tokens, survey shows

Banking & finance

Georgina Lee

Published: 4:49pm, 4 Apr 2022

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Indonesia and Brazil lead the world in the adoption of cryptocurrencies, where investors perceive them as a hedge against currency depreciation and inflation, according to a survey by the US cryptocurrency exchange Gemini.

While bitcoin and other digital tokens are still not accepted as legal tender in most of the 20 markets surveyed globally, their finite supply means that they are still perceived as a more stable store of value than traditional assets, the survey showed.

Some 41 per cent of those surveyed in Indonesia and Brazil owned cryptocurrencies, followed by the United Arab Emirates and Singapore at 35 per cent and 30 per cent, respectively. Hong Kong ranked eighth at 24 per cent.

The global survey of 30,000 individuals, conducted between November and February this year, found that more than half of the cryptocurrency owners in Hong Kong, India and Brazil started dabbling in the asset class since last year, when bitcoin hit a record high of about US$68,900.

Currently, 90 per cent of bitcoin’s limited supply of 21 million is already in circulation. Bitcoin advocates say that it is the cryptocurrency’s finite supply compared with traditional money - whose supplies are subject to central banks’ policies - helped fuel the total market capitalisation of all virtual assets to almost US$3 trillion last year.

“While bitcoin may not be a legal tender in Indonesia, should the value of bitcoin increase with time, this will protect the decreased purchasing power of a currency that results from the loss of its value,” said Feroze Medora, a director of trading at Gemini APAC.

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But cryptocurrencies are also extremely volatile. Bitcoin plunged 50 per cent in mid-January to around US$35,075 from a peak of US$68,900 last November. There are also deep problems with links to organised crime and money laundering.

Gemini, which offers its services in Singapore, Hong Kong and the US, said that respondents in countries that have experienced 50 per cent or more devaluation of their currencies against US dollar over the last 10 years were more than five times as likely to buy cryptocurrency in the coming year.

“Historically, countries that experience high inflation or hyperinflation experience rapid domestic currency depreciation,” Medora said, adding that people in these economies tend to look for an alternative medium to preserve their savings.

Currencies that have shown substantial devaluation over the past 10 years have relatively low levels of correlation with bitcoin. This indicates that as their local currencies weakened, bitcoin denominated in US dollar terms has strengthened, Bloomberg data shows.

Bitcoin shows relatively lower correlation with the India rupee at 0.46, and 0.26 with the South African rand. It is zero for the Brazilian real and inversely related with the Mexican peso at minus 0.29. These four currencies topped the list of the 20 markets surveyed with over 50 per cent currency devaluation over the past 10 years.

The survey comes amid moves by regulators globally to set up a legal framework to regulate cryptocurrency assets.

In Hong Kong, about half of the respondents said they were concerned about virtual assets’ security risks. The government is moving an amendment bill under the city’s anti-money-laundering and counterterrorist financing regulation this summer that will seek mandatory licensing for all virtual asset service providers.

Bringing crypto trading platforms under a licensing regime should help protect investors against technology risks, said Lim Tung Li, senior policy adviser at blockchain analytics firm Elliptic.

“Regulated entities are expected to put in the necessary IT and physical security controls to mitigate cybercrime risks, such as hacking, phishing and other related risks, much like regulated financial institutions,” Lim said, adding that these safeguards and controls may be absent on unregulated platforms.

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