Crypto Adoption in Lower-Middle Income Countries: A Story of Utility Over Volume

5 min readOct 24, 2023

The realm of cryptocurrency has often been associated with developed economies and affluent investors. However, recent data from Chainalysis, a leading blockchain analysis company, sheds light on an intriguing trend: lower-middle income countries are leading the way in terms of crypto adoption, even if they don’t hold the lion’s share in transaction volume.

Understanding the Dynamics

To comprehend this phenomenon, it’s essential to differentiate between ‘adoption’ and ‘volume’. While ‘adoption’ refers to the breadth and integration of cryptocurrency usage among a population, ‘volume’ concerns the total value or amount of crypto transactions. In this context, lower-middle income countries are rapidly integrating cryptocurrencies into their economies, but the overall transactional value remains comparatively lower than in wealthier nations.

Delving Deeper into Crypto Adoption and Volume

The cryptocurrency universe, with its vast array of tokens, technologies, and platforms, offers a multitude of opportunities for different populations. As lower-middle income countries immerse themselves in this space, it’s essential to dig deeper into the nuances between adoption and volume.

Adoption: Beyond Just Numbers

Accessibility: In many lower-middle income countries, cryptocurrency provides a level playing field. Even in areas with limited access to modern banking infrastructures, a simple smartphone with an internet connection can facilitate participation in the global crypto ecosystem.
Versatility: For these countries, cryptocurrency isn’t just an investment or speculative asset. It’s a means of daily transaction, a way to receive wages, or even a method to access decentralized finance solutions like loans and savings.
Education & Awareness: Grassroots movements, community initiatives, and local influencers play a significant role in these countries, driving awareness and educating masses about the benefits, risks, and potential of cryptocurrencies.

Volume: The Bigger Picture

Macro-Economic Factors: While the appetite for crypto is evident, the overall GDP, foreign exchange reserves, and economic health of a country play a role in determining the transactional volume. Wealthier nations naturally have more capital to inject into the market, resulting in higher volumes.
Nature of Use: In many developed economies, cryptocurrency remains a predominantly investment-focused avenue. This leads to larger, less frequent transactions. In contrast, the day-to-day use of crypto in lower-middle income countries results in more transactions but of a smaller average size.
Institutional Participation: Developed economies often see institutional investors, such as hedge funds, banks, and asset managers, making large-volume trades. Such institutional participation is still in its nascent stages in many lower-middle income countries.

The Broader Implications

While the discrepancy in volume might make it seem like the impact of cryptocurrencies in lower-middle income countries is minimal, this couldn’t be further from the truth. The sheer rate of adoption indicates a significant shift in how financial systems operate in these regions. It’s a movement from centralized, often inaccessible systems to a decentralized, inclusive model.

Furthermore, as the global economic landscape evolves, it’s entirely plausible that the volume gap will narrow. Continuous innovations, increased global partnerships, and the growing maturity of crypto markets in these regions can lead to an uptick in transactional values.

Factors Driving Crypto Adoption in Lower-Middle Income Countries: A Deeper Dive

1. Economic Uncertainty: A Push Toward Alternatives

Historical Context: Lower-middle income countries have often been subject to economic shocks, be it due to political instability, poor fiscal policies, or external pressures. This has sometimes resulted in rapid and uncontrolled inflation, causing local currencies to devalue at an alarming rate.
Crypto as a Safe Haven: In the face of such instability, cryptocurrencies, particularly assets like Bitcoin, are perceived as a “store of value”. They provide a hedge against hyperinflation, allowing individuals to preserve their wealth in an asset that isn’t directly tied to their country’s economic conditions.
Empowerment: Beyond mere preservation, crypto also offers empowerment. Residents can transact, save, or even invest without the fear of their wealth being eroded overnight by unexpected economic downturns.

2. Remittances: Bridging Distances Affordably

The Cost Factor: Traditional methods of sending money across borders, like banks or money transfer services, often come with high fees and unfavorable exchange rates. These costs can take a substantial bite out of the funds being sent, especially for lower-income individuals.
Speed and Efficiency: Besides cost-saving, cryptocurrencies streamline the remittance process. What would typically take days in the traditional banking system can now be completed in minutes or hours with crypto.
Empowering the Diaspora: Many lower-middle income countries have a significant portion of their population working abroad. Cryptocurrencies offer them a way to support their families back home without losing a significant portion of their hard-earned money to fees.

3. Financial Inclusion: Democratizing Access to Finance

The Unbanked Challenge: It’s estimated that billions worldwide lack access to basic banking services. This could be due to geographical challenges, lack of necessary documentation, or simply the unviability of traditional banking models in certain regions.
Crypto as a Solution: With just a smartphone and internet access, anyone can create a crypto wallet. This democratizes access to financial services, allowing individuals to save, transact, or even access credit facilities through decentralized platforms.
Financial Autonomy: Cryptocurrencies provide a level of autonomy that traditional banking systems often can’t. Users have full control over their funds, without the need for intermediaries or the fear of unexpected account freezes.

4. Technological Leapfrogging: A Digital Jump Forward

The Mobile Phone Analogy: Much like how mobile phones allowed many regions to skip the landline phase, crypto is enabling countries to bypass traditional banking stages. They’re moving directly to more advanced, efficient, and inclusive financial systems.
Rapid Adoption: The proliferation of smartphones and affordable internet access in these countries provides the perfect infrastructure for rapid crypto integration. Local startups and businesses are also recognizing this trend, offering services tailored to this new digital economy.
Future-Ready: As the global financial landscape becomes increasingly digital, these countries are positioning themselves to be at the forefront of this revolution. Instead of playing catch-up, they’re preparing to lead.

Volume Discrepancy Explained

While the adoption rate is impressive, the transaction volume in these countries doesn’t match up to that of wealthier nations. The reasons are multifold:

Purchasing Power: Despite the high adoption rate, the average transaction size remains smaller due to the lower purchasing power in these economies.
Nature of Transactions: Transactions in lower-middle income countries are often peer-to-peer and of a more personal nature, as opposed to large institutional trades common in developed economies.
Limited Institutional Participation: Institutional investors, which usually drive up transaction volumes, have a lesser presence in these markets.

Summary

The data from Chainalysis underscores a pivotal shift in the global crypto landscape. As lower-middle income countries embrace the utility of cryptocurrencies, they highlight the very essence of decentralized finance — democratizing access to financial systems. While they may not lead in volume, their burgeoning adoption rates are a testament to the transformative potential of cryptocurrencies in reshaping economies and improving financial inclusivity.