Proof of State is the Wednesday edition of Fortune Crypto where Leo Schwartz delivers insider insights on policy and regulation.
The eternal refrain is that crypto is still looking for its killer use case—the real-world application of permissionless blockchain that will elevate it from speculative technology to transformative infrastructure. Candidates have included everything from gaming to money laundering, with varying degrees of success. The clear winner to me has always been cross-border payments.
I first became interested in crypto while covering Latin America as a tech reporter, and specifically its potential to disrupt the market of remittances—global money transfers, typically by migrant workers back to their home countries. In 2021, Latin America received more than $130 billion in remittances, with the industry dominated by high-cost companies like Western Union and MoneyGram that charge upwards of 10% for each transaction.
While boosters have long claimed that crypto can reshape remittances, I have always been skeptical of its actual adoption. In mid-2020, I spoke with Pablo Gonzalez, a cofounder of Mexican crypto exchange Bitso, who told me that despite crypto’s ability to drastically lower fees, everyday users were still hesitant to trust a new technology. Just look at El Salvador, where crypto remittances continue to fall despite the country’s embrace of Bitcoin.
I’m in Rio de Janeiro for Web Summit this week, and I had the opportunity to catch up with Daniel Vogel, cofounder and CEO of Bitso. In his view, the tide is finally turning. According to Vogel, Bitso processed $3.3 billion in remittances from the U.S. to Mexico last year, likely representing around 6% of the total market—still just a drop in the bucket, but a marked increase from 2021, when the figure was around $2 billion.
Vogel told me that clear regulation was one reason for the growth. Mexico passed a financial technology law in 2018. While it hasn’t reached the potential that entrepreneurs hoped, it allowed Bitso to connect to the country’s interbank payment system by late 2020. Global liquidity in crypto markets, as well as the rise of stablecoins, have also supported Bitso’s growth.
He also cited two major setbacks. Because users in the U.S. must first find an on-ramp into crypto through a U.S. company like Coinbase before sending funds to Bitso, the preferred cryptocurrency for remittances has shifted over the years, from Bitcoin and XRP to USDC and Tether. Vogel said that the Securities and Exchange Commission’s (still ongoing) lawsuit against Ripple in 2020 dried up the market for XRP owing to uncertainty over whether it is an unregistered security. As a result, crypto remittance payments overall took a major hit.
This happened again just a couple of months ago when Silvergate, Silicon Valley Bank, and Signature collapsed. Users had turned to USDC after XRP, but the depegging of USDC as a result of Circle’s exposure to SVB, as well as the reliance on Signature’s and Silvergate’s real-time payments platforms Signet and SEN, again hurt remittance flow. Vogel said that Bitso has been able to find new banking partners—likely crypto-friendly players like Customers and Cross River, although he declined to specifically name them—but the episode reflects the ripple effects of U.S. policy on global crypto adoption (no pun intended). Despite the setbacks, the growth is promising for an essential payments corridor between the U.S. and Latin America. According to Vogel, remittances through Bitso infrastructure can have a transaction fee of less than 1%.
Leo Schwartz
leo.schwartz@fortune.com
@leomschwartz
