As crypto prices dropped so did enthusiasm for digital assets around the world.
An index that gauges “where the most people are putting the biggest share of their money into cryptocurrencies” declined year over year in the second quarter but remains above pre-bull market levels, according to Chainalysis.
Most of the crypto adoption in the past year occurred in the fourth quarter of 2021. Since then, the rate of adoption has slowed then stabilized, with similar adoption recorded in the first and second quarters of this year, according to Kim Grauer, Chainalysis’ director of research.
The slowdown occurred as the total cryptocurrency market capitalization declined 37% year over year, underscoring the inherent risk in these assets.
“A lot of crypto is still speculative,” Grauer said. “No matter where you are in the world [and] the day to day way [people] choose to spend their money is impacted by that.”
The index considers adoption of digital assets across 154 countries and compares them using five different “sub-indexes,” including cryptocurrency value received by centralized exchanges, peer-to-peer marketplaces and DeFi protocols, which are all weighted by purchasing power parity (PPP) per capita, a metric economists use to compare standards of living between countries.
Overall, lower middle income countries such as Vietnam, Ukraine, India, Pakistan, Nepal and Kenya continue to lead rankings over the past year. Adoption in China also appeared to have grown, despite banning crypto mining and trading a year ago.
In general, countries showing more restrictive capital controls appear to be emerging as a trend among higher rates of crypto adoption.
As an example, the index found that Argentina (ranked #13 by the index), which is facing the prospect of 90% annual inflation rate by the year’s end and steep capital controls on U.S. dollar usage [link], had the highest number of people using cryptocurrency as an inflation hedge.
Russia, which was ranked 18 in last year’s index, took the 9th spot for 2022. After banning cryptocurrency mining and trading a year ago, China, too, advanced in rankings from the thirteenth to the tenth country where cryptocurrencies are most adopted.
“I think that there is quite a bit of business happening on the rails of cryptocurrency when China is a counterparty,” she said, pointing to imports in Nigeria and Brazil as well as “funds moving between China and Russia in a business capacity.”
In other countries, based on anecdotal interviews with regional experts, Chainalysis found that as crypto prices fell, NFTs dominated the adoption of crypto over the past year in such forms as “play to earn” game items and sports themed trading cards.
“This is a new class of users coming into crypto from emerging markets that maybe would not have come in if there weren’t some alternative use case besides just speculation,” Grauer told Yahoo Finance.
On the other hand, adoption in the United States varies more towards innovation with a higher concentration of “tech talent” and “a lot of money” having network effects where people invest in less accessible parts of the market for average users, such as decentralized finance (DeFi), in the hopes of finding or building “the next killer app,” according to Grauer.
After finding last year that 16% of U.S. adults said they have invested into cryptocurrencies, a followup poll conducted by Pew Research in July found that 46% of those surveyed who invested in crypto last year said their investments have done worse than expected.
“We’ve seen stagnation in the United States in recent months and we need time to see if that continues,” Grauer said, suggesting the stagnation may be linked with Americans already having adequate banking infrastructure and on the technology side, not yet “seeing that next big development that’s really attracting more people to using cryptocurrency.”
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David Hollerith is a senior reporter at Yahoo Finance covering the cryptocurrency and stock markets. Follow him on Twitter at @DsHollers
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