LatAm crypto firms to face tough 2023, focus on rebuilding trust

Last year was incredibly painful for crypto companies worldwide by almost every measure. Layoffs increased across the industry, and demand for digital assets plunged.

The beginning of 2023 has certainly not been easy either, with global firms such as Coinbase and Digital Currency Group downsizing further in the face of the risk-averse market. 

The industry braces for rough seas ahead as the bear market enters its second year. For Latam crypto companies, however, cryptocurrencies retain their lure despite the lower price. This is especially true in inflation hotspots, where technology can often bridge inefficiencies in the traditional banking sector. 

They are hedging against inflation and facilitating cross-border payments. Both are primary use cases explaining the region’s adoption. These forces are driving some firms to continue launching products based on blockchain technology.  

Last month, crypto giant Binance announced a partnership with Mastercard in Brazil. The goal is to bring crypto cards – which have seen sizeable adoption in Argentina– to the region’s largest market. 

A complex 2022 for LatAm crypto

Over the past month, cryptos have recovered marginally. Bitcoin and Ether are up 45% and 35% yearly, respectively. They are still well below their record highs in recent years.

But despite the partial recovery, analysts expect Latin American crypto companies to weather a complex 2023. Chief among the agenda is cutting costs, moderating ambitious expansion strategies, and focusing on products that can turn around revenue. 

Mathias Caramutti headshot
Mathias Caramutti, Co-founder at Celeri.

“Companies that will make it through the bear market adapt their (capital) needs and offer a distinctive product,” Mathias Caramutti, Co-founder at Celeri, a crypto startup focused on compliance, told Fintech Nexus. “Without the growth rates, we’ve seen in the past, though.”

He argues that startups must adopt more conservative strategies and avoid unnecessary expenses. “The idea is to consume as little capital as possible. Ideally, increasing the volume of users while searching for alternatives for monetization.” 

Focus on transparency

Last year, leading crypto firms in the region undertook downsizing strategies. Buenbit in Argentina cut its headcount by almost half in early 2022. Bitso laid off close to a hundred employees in Mexico.

Most of the remaining crypto companies in other countries went through similar paths. 

Following the collapse of FTX, crypto firms will likely spend considerable efforts this year on improving transparency.  

Concepts like Proof of Reserves and Proof of Solvency are now becoming an industry standard, a spokesman from Lemon, an Argentine crypto firm, told Fintech Nexus. “After a hectic year in the cryptocurrency industry, users will be able to verify for themselves the solvency of the company to which they are ceding custody of their funds,” Francisco Landino, Director of blockchain at Lemon, said. 

Regulation to speed up in LatAm

At any rate, most industry players are bracing for further regulation. They sometimes argue that a legal framework is critical to regaining trust.  

According to Santiago Mora, a fintech professor and partner at GPG Advisory Partners, the collapse of FTX will likely lead to accelerated regulatory processes across Latin America. Some economies already have some kind of regulation primarily geared toward protecting the user. It is expected that this will get more robust going forward. 

“Regardless of each country’s regulatory stage, companies must act as if exhaustive fintech legislation was already in place,” Caramutti said.  

Mora argued, nonetheless, that it is essential that regulators do not take “hasty measures that are not sufficiently thought out or discussed (with the industry).” “Poor regulation, far from solving the problems, makes them worse,” he said.  

  • David Feliba

    David is a Latin American journalist. He reports regularly on the region for global news organizations such as The Washington Post, The New York Times, The Financial Times, and Americas Quarterly.

    He has worked for S&P Global Market Intelligence as a LatAm financial reporter and has built expertise on fintech and market trends in the region.

    He lives in Buenos Aires.