Demand for new ways of value storage is often connected to economic happenings and citizens taking matters into their own hands. In recent years, many people have been turning to cryptocurrency to find solutions to the current flawed financial system. According to blockchain analytics firm Chainalysis, emerging markets are consistently at the forefront of global crypto adoption. But does this mean crypto adoption is proving to be more successful in emerging markets and if so, why? And how exactly can crypto adoption offer real, long-lasting solutions?
Financial Inclusion in the Philippines: An Overview
In the Philippines, more than 50% of its 111 million population is unbanked, according to data from UK research platform Merchant Machine. Many people in the Southeast Asian country are underserved by traditional financial institutions or unable to access or even create a bank account. Minimum balance requirements for bank accounts and service fees were often barriers for people living in poverty. Lack of official forms of identification or significant distance to financial institutions or banks were also frequently cited as a disadvantage. In 2022, the government shared a national economic strategy with the goal of “achieving a shared vision of accelerating financial inclusion toward broad-based growth and financial resilience” (thefintechtimes.com). While the Philippines has sustained economic growth since 2012 (+6.6% per year on average), its poverty and income inequality levels are still higher than most of its Southeast Asian neighbours due to existing financial exclusion of low-income populations. The Philippines ultimately need to not just focus on raising minimum living standards and tackling poverty but also look at educating and creating new sustainable economic pathways based on digitalisation, financial inclusion and equality.
According to Visa’s Consumer Payment Attitudes Study 2021, 94% of citizens still identified cash as their primary payment method. Filipinos trust cash as it is free to use, readily available, private, unhackable and doesn’t require battery power. Education on the benefits of digital payment technology is needed to shift the population towards alternative payment methods. Times are changing though: about 60% of Filipino consumers now carry less cash in their wallets, and 84% have tried going cashless. The COVID-19 pandemic and the consequent lockdowns have sped up digital adoption. Dan Wolbert, Visa country manager for the Philippines, stated: “Filipinos believe COVID-19 has accelerated the country’s transition to a cashless society. Our study showed more Filipinos are confident to get by without cash and for longer periods of time, with more than half feeling confident to get by for a week or longer, as cashless payment options grow” (business.inquirer.net). The pandemic has no doubt sped up the move towards digital technology in the Philippines and encouraged citizens throughout the country to explore alternative digital payment options.
Cryptocurrency Adoption in Emerging Markets
Emerging markets are consistently at the forefront of global crypto adoption. “One reason for this could be the value that users in emerging markets get from cryptocurrency. These countries dominate the adoption index, in large part because cryptocurrency provides unique, tangible benefits to people living in unstable economic conditions,” the Global Adoption Report states (coindesk.com). Kim Grauer, Director of Research at Chainalysis, further supports this research: “We found that a lot of people simply don’t have the same level of access to investments and instead turn to crypto offerings. We see that a lot in places where there’s a young, tech-savvy population who are starting to have a disposable income” (forbes.com). Cryptocurrencies are seen by many as a safe haven, especially in periods of economic pressures. Despite weaker public sentiment on cryptocurrencies in the current bear market, demand has remained resilient in emerging economies.
The Philippines rank second in the 2022 Global Crypto Adoption Report. Chainalysis: The Geography Of Cryptocurrency Report 2022
The Philippines has seen a massive increase in crypto adoption over the past few years due to the COVID-19 pandemic. The long isolation period exposed the country’s growing middle class and tech-savvy young people to digital tokens through popular blockchain-based games such as Axie Infinity. Axie Infinity attracted gamers with NFT rewards and led to the creation of organisations that would pay for the cost of playing in exchange for a cut of players’ winnings. At one point, 40% of players of the game, which generated US$1.3 billion in revenues last year, were reportedly based in the Philippines. Axie Infinity collapsed earlier this year after it got hacked for over $600 million, but this didn’t stop the hype. Players — especially in emerging markets — consistently use play-to-earn games as a source of income, and many of those game developers are based in Southeast Asia. Another reason for the high cryptocurrency adoption rate is the Philippines’ massive international money transfer market, with many sending money from abroad back home to their families. Cryptocurrencies, especially stablecoins, help bridge the gap in cases where recipients don’t have access to traditional banking channels and money transfer services charge outrageous fees.
Cryptocurrency in the Philippines Today
Filipino authorities are undoubtedly crypto-curious and see early investment as a way to bring crypto businesses to the region. A new project to establish the Cagayan Valley as the ‘Crypto Valley of Asia’ via a US$100 million plan is on its way with the goal of creating a hub for fintech and crypto-related ventures in the region. The project aims to mimic Zug in Switzerland, a city known for its encouragement of cryptocurrency use and currently home to around 200 blockchain companies. The government hopes that the ‘Crypto Valley’ will strengthen the economy and allow more Filipinos to pursue careers in technology. High cryptocurrency adoption and strong English language proficiency mean the ecosystem could create new opportunities for citizens and businesses alike. The government also wants to promote education on digital assets and blockchain to help further increase crypto literacy and protect people against scams. Education is ultimately the most crypto-enabling environment as it encourages participation and fosters knowledge and awareness, which could continue to see cryptocurrency adoption rising in the near future.
Frameworks and regulations are still a work in progress, although digital currencies are legalised and cryptocurrency exchanges are regulated by the Central Bank of the Philippines. However, cryptocurrencies are only recognised as virtual assets and not as a currency as they are not issued or guaranteed by a central bank or backed by any commodity. As of 2022, there are no set cryptocurrency tax guidelines or laws in place; however annual earnings (including cryptocurrency gains) are subject to personal income tax. The Philippine central bank and government no doubt realise the potential of cryptocurrencies for improving domestic and cross-border payments and see opportunities in utilising blockchain technology to enhance security and efficiency of financial services in the country. Crypto adoption in the Philippines is set to continue to rise as more businesses and citizens discover the benefits and convenience of digital assets. We are excited to see how regulations can further promote cryptocurrency adoption and the benefits it will continue to bring to Filipino citizens and businesses alike.
In this new series we’ll be investigating cryptocurrency adoption in emerging markets.