LATAM Crypto

VeradiVerdict - Issue #139

Bitso, one of the largest cryptocurrency exchanges in Latin America, raised a $255M Series C last month, which Pantera, as an early backer, also participated in. This round of fundraising puts the startup at a nearly $2.2B valuation, becoming the first crypto unicorn in Latin America.

It’s been a nearly seven-year-long journey—and there’s a lot more left ahead—but it’s worth looking back to see how Bitso got to where it is today.

Why focus on Latin America?

Bitso currently supports customers in Mexico, Argentina, and Brazil, with the ambition to spread to other countries in the region.

Latin America has long been considered a logical place for crypto to flourish. Recently, as Venezuela’s hyperinflation crisis has debased the nation’s currency, citizens have turned to cryptocurrency as a safe haven from central bank mismanagement. While Venezuela is a particularly tragic case, cryptocurrency can also offer value to other nations in the region, even in the absence of a currency crisis.

There are three use cases for cryptocurrency in the short-term for Latin America that we find particularly exciting:

First, remittances. In 2019, the region received $97B from family members, friends, or other remitters abroad. For some countries, these remittance payments can make up a significant fraction of the national income; for example, remittances comprise over 20% of El Salvador’s GDP. However, these transfers between households are typically small and can sometimes face outrageous fees, up to 20%.

Source: Visual Capitalist

In particular, nearly $40B is remitted between the US and Mexico each year—one of the world’s largest remittance corridors—with no sign of slowing down. In 2020, Bitso captured 5-7% on a weekly basis of these payments by leveraging the blockchain to offer lower fees and higher convenience than incumbents.

Second, saving. In countries with poorly-managed currency systems or fears of hyperinflation, citizens typically turn to the US dollar to store their wealth. However, obtaining dollars is difficult in many countries, resulting in inconvenient and sometimes risky ways of acquiring bills. Some countries have even imposed currency controls to criminalize this activity, resulting in a number of black markets.

Source: CATO Institute

As a result, users are increasingly purchasing stablecoins, which track the value of the US dollar and other fiat currencies, on Bitso. DAI and USDC, in particular, have received a vote of confidence from Latin American users who choose to save their wealth in the stablecoins. This trend of the region’s “stablecoin-ization” is unlikely to slow down.

Third, trading. Digital assets are nearly a $2T asset class gaining attention and even institutional buy-in around the world. In Latin America, there is substantial demand for both retail investors to gain exposure to different cryptocurrencies and for more sophisticated investors to engage in complex trading strategies. Professional trading makes up the majority of the region’s current volume, so providing superior services to financial institutions is a massive opportunity. 

While there are many other long-term use cases for cryptocurrency, including ones unimaginable today, these are the most immediate ways the technology will impact the region.

How does Bitso target these use cases?

Bitso currently offers three products:

Bitso App is the company’s consumer product. It supports buying, selling, and transferring cryptocurrency. The mobile app is sleek and includes a crypto wallet that can be used to transfer coins to other addresses, much like Venmo’s functionality. Currently, nine cryptocurrencies are supported: BTC, ETH, TUSD, XRP, DAI, LTC, MANA, BCH, and BAT.

Source: Bitso

Bitso Alpha is a more sophisticated financial platform built for traders. It supports multiple fiat on- and off-ramps—US dollars, Mexican pesos, Argentine pesos, and Brazilian reais—as well as boasting some of the lowest trading fees in the industry. As a result, the platform has an average daily volume of around $40M.

Source: Bitso

The company has a number of new features in the pipeline, though, including crypto derivatives (following their acquisition of Quedex) and interest-bearing accounts (similar to BlockFi).

Bitso for Business is the company’s B2B product offering. It offers crypto-powered financial solutions for businesses to participate in the global economy and grow beyond local borders by allowing them to save, pay, and get paid in multiple currencies and also send money at competitive FX rates.

What sets Bitso apart from other exchanges?

While Latin America has no shortage of other exchanges, most operating in individual countries, Bitso has distinguished itself as an industry leader not only in the region, but also globally.

Since it acts as a custodial provider, Bitso has focused intensely on the security of its customers’ funds, adopting best-in-class practices even while being in a nascent industry. Notably, it recently partnered with an insurance firm to fully protect its users’ funds against the risk of a hack or exploit, becoming the first exchange on the South American continent to do so. In addition, it has been ranked the seventh most secure cryptocurrency exchange in the world, just two spots below the now-public Coinbase.

The company’s forward-thinking product design is another differentiator. Bitso has made the process of onboarding users into the cryptocurrency universe as simple as possible by designing an elegant user experience and partnering with local banks and regulators. This also allows them to be ahead of the pack in unrolling new features; for example, they recently unveiled a way for users to add beneficiaries to their accounts, a pain point that even giants like Coinbase still haven’t resolved.

Has Bitso gained traction?

It has been a banner year for crypto, including an exciting bull market, the explosion of DeFi, the mainstream adoption of NFTs, and the institutional affirmation of crypto as a legitimate asset class, just to name a few. This “crypto wave” has also resulted in a surge in the adoption of Bitso, as well—here are a few highlights:

  • 7 million peer-to-peer transactions facilitated by Bitso Transfer.

  • Over $1.2B in international payments processed in 2020 alone.

  • Over 350 employees representing 27+ different nationalities.

  • Nearly 200k Argentinians onboarded in Q1 2021, a 97.1% increase quarter-over-quarter.

We’re still in the early innings, but I believe that Bitso has firmly embedded itself into the Latin American crypto ecosystem through a mixture of intimately understanding user needs, building great financial infrastructure, and striking local partnerships. They should serve as an example for entrepreneurs hoping to build similar fiat on- and off-ramps in other geographies. We’re excited to watch the platform continue to grow.

- Paul V

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ABOUT ME

Hi, I’m Paul Veradittakit, a Partner at Pantera Capital, one of the oldest and largest institutional investors focused on investing in blockchain companies and cryptocurrencies. I’ve been in the industry since 2014, and the firm invests in equity, early stage token projects, and liquid cryptocurrencies on exchanges. I focus on early-stage investments and share my thoughts on what’s going on in the industry in this weekly newsletter.