Why VanEck Is Bullish on Crypto, DeFi in Emerging Markets

December 08, 2022

While a recent survey from CNBC found that only 8% of Americans have a positive view of cryptocurrency, down from 19% in March, VanEck analysts have a different view.  

At a media briefing this week, VanEck provided its outlook for cryptocurrency in 2023, which highlighted the utility of bitcoin in emerging markets. 

Matt Sigel, VanEck Global’s head of digital assets research, noted that based on his calculations, 2.5 billion people are living in countries that have greater than 7% inflation, while 15 currencies around the world are down more than 20% year to date.  

He further pointed out a number of factors playing into bitcoin’s popularity, including what he termed “financial censorship,” such as banks being closed in Lebanon, Iran potentially freezing the bank accounts of women who refuse to wear hijabs and PayPal’s clawback for violating its terms of service.  

“A lot of people object to this financial censorship, and those who are in the poorest countries in the world with declining foreign exchange rates are attracted to that neutral money,” Sigel said. “And we want to be involved.” 

Importance of Remittances 

He added that remittances—money sent by foreign workers to their home countries—are a major global business, and while the fees average 6% on such transactions, people in the poorest nations—such as Pakistan, Thailand, Jordan, South Africa and Tanzania—can be paying as much as 15%-25%. Remittances to low- and middle-income countries grew 5% in 2022 to $626 billion, according to the World Bank.  

“These remittance corridors are, according to the IMF, dominated by banks and a few players, and we think that different payments rails can disrupt this business, and bitcoin and crypto will do that,” Sigel said.  

He also added that VanEck has found that countries with high inequality, poor governance and fiscal balances tend to have the highest rates of bitcoin and cryptocurrency adoption.  

“There are billions of people in the world without our financial privileges who look at bitcoin and gold [through] a different lens than we do in the West,” he noted, pointing out that the last time bitcoin crashed, 84% of holders didn’t sell their positions in it and that the same trend has held true in the most recent crash of the cryptocurrency, during which it has lost 77% of its value. 

Carlos Gonzalez, a research analyst with 21.co, the parent company of 21Shares, agreed that emerging markets are a key region for cryptocurrency growth.  

“If you divide countries by their income levels, basically what you find is that countries in the lower to middle income [range] are the ones driving crypto adoption, not just bitcoin, at a grassroots level and actually using that for their day-to-day use cases, not just as an investment,” he told ETF.com.  

Multiple Tailwinds 

Sigel further made several predictions for the coming year, among them that the price of bitcoin could rise to $30,000 in the second half of 2023 should there be an end to the war in Ukraine and just a lack of bad crypto-related news restoring confidence in the concept.  

He also cited the acceleration of security tokenization—essentially, the trading of securities on the blockchain—as a trend to watch for going forward, with Brazil potentially leading that charge, noting that it’s a very crypto-friendly country.  

VanEck also noted that decentralized stablecoins will continue to proliferate, according to one of the slides during the presentation. Decentralized stablecoins are pegged to a currency or commodity like the U.S. dollar and gold; they’re also fully transparent and noncustodial.  

Those qualities help to limit volatility, thus the name “stablecoin.” Sigel believes demand for decentralized stablecoins is strong in the DeFi space, while 21.co’s Gonzalez says he considers them one of the most important innovations in DeFi. 

“Stablecoins allow you to transact basically at near zero cost,” Gonzalez added, noting that at $140 billion in value, they represent about 16% of total cryptomarket capitalization. “We believe that stable coins will be very important in the coming year.” 

 

Contact Heather Bell at [email protected] 

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