Western Union recently announced it would be suspending U.S. dollar transfers to Cuba, due to sanctions from the United States. This may only increase the attractiveness of sending remittances with cryptocurrencies, which are much more resistant to geopolitical tensions.
According to the World Bank, Latin America’s formal remittance market is around $96 billion. But traditional services like Moneygram or Western Union can come with high commissions, unfavorable exchange rates, limited office hours, long transmission times and daily exchange limits.
Crypto remittances are a different story. I’ve sent money from Venezuela to family members in Colombia and Spain, using the peer-to-peer platform LocalBitcoins. These transactions are often faster and cheaper than their traditional finance counterparts, with fewer steps to send money, at least if you know how to take advantage of the platform.
First, I would buy bitcoin with bolivars through a bank transfer in LocalBitcoins, then I would look for sell offers of BTC in Colombia or Spain. I would choose the offer with the best exchange rate for the currency my relatives use. After the other party transferred the currency to my relative’s bank account, I would release the BTC. This whole process takes less than an hour, and the platform charges a 1% fee to whoever published the trade offer. There are other platform options as well, such as Binance P2P and LocalCryptos. (Disclaimer: In 2021 I will be hosting a program on YouTube that is sponsored by LocalBitcoins).
Crypto remittances organized on messaging platforms like Whatsapp, Telegram and WeChat can be more competitive. Members of the group set their own exchange rates, but they will use other exchange rates as references. There are no official commissions or exchange limits, you just need to have good references, publish the price and amount that you want to trade.
I have participated in a WhatsApp group of almost 200 informal cryptocurrency merchants processing remittances and/or other trades, with a diversity of phone numbers from different Latin American countries, but most were numbers from Venezuela. Various numbers are business accounts with names or descriptions that include words like “money transfer” or “remittance.” There was even one person from China.
The transaction amounts I’ve seen range from $100 to $5,000 per transfer. Escrow is not generally used on these platforms because trading tends to happen between select and trusted people.
Even though crypto remittances might be less cumbersome than traditional ones, crypto remains bewildering to many people and, depending on from which country funds are being sent, complicated and expensive. As a workaround, a new market has come into existence, where individuals like Gabriela Fernández, a Venezuelan who emigrated to Argentina in 2018, helps her clients send cross-border remittances using BTC and USDT. She offers an unofficial VES/ARS exchange rate and also takes a commission.
Gabriela receives Argentine pesos from her clients who are in Argentina, and she then exchanges those pesos for bitcoin on peer-to-peer exchanges. This bitcoin is converted to bolivars in her personal account in Venezuela, which is then transferred to her clients’ family members. Her clients don’t even necessarily know that she uses bitcoin to send remittances, she says, and they probably wouldn’t understand it anyway.
Gabriela told me that due to the increase in unemployment spurred by the COVID-19 pandemic, the volume of remittances has been reduced but competition between crypto remittance operators has been growing. This could be interpreted as a sign of health of the remittance market.
“When I arrived in Argentina, in 2018, the profit margin I had (in each transaction) was between 15% to 30%. Now, with more competition, I get a lower profit between 5% to 10%. This is because of new competitors who settle for lower profits. “
Between 2016 and November 2019, almost 4.6 million Venezuelans moved to other countries, mostly in Latin America and the Caribbean, according to data from the United Nations High Commissioner for Refugees (UNHCR), perhaps fleeing the economic or political crisis in our country. This diaspora generates demand for remittance services: Venezuelans abroad can send money to their families back home, using the local currency of their new country of residence. Small businesses, ranging from individuals who handle transactions to startups like Valiu and Reserve, help people make these crypto transfers. Even the Venezuelan government wants to participate in the cryptocurrency remittance market with its own crypto platform.
Recently, Venezuelan remittances have been suffering from the reduction of economic activity in countries with more Venezuelan immigrants like Colombia, Peru, Chile, Ecuador and Brazil. According to various local analysis, remittances will decrease by almost half from $3.7 billion in 2019 to $1.9 billion this year. Much of this has to do with the impact of COVID-19 because people simply have less money to send.
Chainalysis estimates Venezuela may have received roughly $4 million in crypto on-chain remittances in June 2020, down from around $6 million a year ago. Chainalysis estimates the remittance market based on an approximation of smaller transfers directly received in Venezuela from other countries. A spokesperson for Chainalysis told CoinDesk via email there is no way to verify if these are indeed remittances because they cannot ask a person to reveal the intention behind a transfer.
Danilo Sánchez, a Venezuelan ex-crypto miner who emigrated to Peru and who now engages in financial arbitrage between currencies, observed of the crypto remittance market:
“All of this is driven by the immigration of Venezuelans who have the need to send funds to their families. Bitcoin is an efficient tool for sending money to Venezuela from the comfort of home.”
Mexico has the largest share of the remittance market in Latin America. Emigration to the United States has formed a fairly formal remittance industry with high competition, where there is little space for remittances with cryptocurrencies made by informal operators. That’s why there aren’t many offers on P2P platforms like LocalBitcoins, compared to Venezuela.
In this environment, Mexico’s Bitso crypto exchange stands out. It offers a service that uses the Ripple network and its XRP token to send remittances between Mexico and the United States. Bitso claims that it moves up to 10% of total remittances between the U.S. and Mexico, despite the impact of the COVID-19 pandemic.
In 2019, the U.S. received almost 3 million Cuban immigrants, but due to sanctions the remittance industry becomes complicated, as we saw with recent restrictions on Western Union.
This just makes a stronger case for sending remittances with crypto. Cuban YouTuber Erich García Cruz explained in an interview with CoinDesk that tech-savvy Cubans are getting closer to bitcoin, since it is a digital electronic money that is resistant to geopolitical problems or government regulations. García has even launched a remittance service with informal operators to send remittances to Cuba. The recipient of remittances never even has to interact with cryptocurrencies.
García explained that his business receives bitcoin and other cryptocurrencies from abroad, then auctions them for a lower price in the local market for those interested in acquiring cryptocurrency with Cuban convertible pesos, making a profit from the difference in the sale price. There are around 300 to 400 active users, moving amounts of $10 to $20 per transaction.
There are other enterprises operating in Cuba that try to offer a way to send remittances while avoiding direct interaction with the Cuban or U.S. governments. They work mainly with P2P exchanges, similarly to how the U.S. sent money to doctors in Venezuela without needing the approval of the Maduro government.
These examples highlight cryptocurrency’s potential to transfer value between countries with geopolitical conflicts, or from countries that restrict the movement of capital across borders.