Crypto Adoption in 2023 - Which Countries Lead the Pack?

By  Noah Washington September 6, 2023

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  • Developing nations with currency instability or limited banking are driving crypto adoption, with usage far exceeding advanced economies
  • Regulation remains crucial, with crypto-friendly countries attracting startups and investment - overly strict rules may constrain innovation
  • Central bank digital currencies (CBDCs) are on the horizon and could disrupt finance and crypto by modernizing payments

Cryptocurrencies like bitcoin (BTC) and ether (ETH) have exploded in popularity over the last few years, and 2024 may be poised to be a banner year for mainstream adoption according to a new report. The Cryptocurrency Research Institute (CRI) analyzed cryptocurrency trends across countries and industries and found that global adoption is accelerating, driven by favorable regulations, institutional interest and grassroots demand.

Regulation Remains a Crucial Driver

As crypto continues to gain global traction, regulation remains one of the most crucial drivers that will shape the future of the industry.

Countries with clear regulatory frameworks governing crypto —such as Canada, Switzerland, and Malta—have emerged as crypto and blockchain havens. These jurisdictions have attracted droves of startups, entrepreneurs, developers, and investment capital as the regulatory clarity provides legitimacy without stifling innovation. In 2022, major financial hubs like the UK, Singapore, and Australia have all enacted new crypto-friendly laws and regulations aimed at boosting growth in a responsible manner.

Highlights of countries and regulatory requirements. Source: Comply Advantage

Even as the industry matures, lingering concerns remain around consumer protection, security, manipulation and more. While thoughtful regulation is important to provide guardrails and legitimacy to crypto finance, policymakers must strike a very delicate balance. Overly stringent rules could constrain innovation, drive activity underground, and prevent the mainstream adoption of digital assets.

Recent collapses like Celsius show how crypto remains highly complex and volatile for average retail investors to navigate safely. Celsius froze withdrawals, liquidations, and account transfers due to extreme market volatility that left many of its borrowers unable to repay loans. This evaporated consumer confidence and raised fears of insolvency.

As crypto evolves, regulators around the world will aim to enact thoughtful rules that protect consumers without limiting innovation. Those that succeed will lead the next wave of crypto adoption.

Developing Nations Lead in Usage

Contrary to popular belief, many developing nations with unstable currencies or limited banking access are actually the biggest adopters and users of cryptocurrencies globally.

In Nigeria, for example, many citizens now own or use cryptocurrencies in some form, one of the highest rates of crypto adoption in the world. Across many countries in Africa, Latin America and Southeast Asia, crypto has become a critical hedge against high inflation and currency devaluation risks that plague developing economies. Citizens turn to crypto as a store of value and medium of exchange when local currencies falter.

Those in developing countries are more likely to hold crypto. Source: ResearchFD I

While crypto innovation began primarily in advanced economies like the United States, developing countries facing currency crises, hyperinflation, and inefficient banking systems are actually the leading adopters today. Their citizens rely on crypto as a censorship-resistant monetary alternative and financial lifeline. This expanding real-world utility and adoption in emerging markets will likely further accelerate mainstream acceptance and legitimacy of cryptocurrencies worldwide.

Central Bank Digital Currencies on the Horizon

Many central banks are now prototyping CBDCs or digital versions of fiat money to modernize payments and counter cryptocurrencies. According to surveys, over 80% of central banks worldwide are exploring CBDCs. While rollout is still years away, CBDCs could significantly impact the crypto landscape.

CBDC development around the world. Source: Visual Capitalist

One key driver of CBDC interest is China's progress in developing a digital yuan. The prospect of China gaining a first-mover advantage with a major global digital currency has prodded other countries to accelerate their CBDC efforts. While no major advanced economy has fully launched a CBDC yet, many are making strides through pilot projects and research. Sweden's Riksbank has been testing an e-krona, while the Bahamas became the first country to officially roll out a CBDC called the Sand Dollar in 2020. The Eastern Caribbean Central Bank also launched a digital currency pilot in early 2022.

The European Central Bank is exploring a digital euro, concerned about the implications of foreign CBDCs and crypto assets for the eurozone's monetary sovereignty. Japan and South Korea have both stepped up digital currency research to counter China's rapid CBDC progress.

In the United States, discussion on a potential digital dollar is heating up. The Federal Reserve is collaborating with MIT on CBDC research and released a much-anticipated discussion paper in January 2022. While the Fed has not committed to issuing a CBDC, Chairman Jerome Powell has indicated it could be preferable to the alternatives.

CDBCs Versus Crypto

The emergence of CBDCs is also being warily eyed by the cryptocurrency sector. Bitcoin and its peers largely emerged as decentralized alternatives to government-issued fiat currencies. But if central banks co-opt digital currency technology through CBDCs, it could detract from crypto's foundational appeal and undermine the justification for decentralized cryptocurrencies. Of course, the full dynamics between CBDCs and crypto remain unclear for now.

The integration of blockchain-based payment systems into the design of some CBDCs could also spur more mainstream adoption of crypto transaction methods. Even decentralized cryptocurrencies could benefit from the validation and standardization of digital currency tech through CBDCs. While the implications are yet to be fully realized, CBDCs will certainly represent one of the most profoundly transformative innovations in finance and money in the coming decade. Their emergence will spark much uncertainty and promise on the path ahead.