4 Key Takeaways from Chainalysis' 2023 Crypto Adoption Index

Mass adoption has been one of the key goals of the cryptocurrency industry for the past few years.

Questions like “How do we onboard the next one billion users to the Web3 world?” and “Will there be a Web2.5 before the world is ready for Web3?” have been hot topics for discussions at events, including this week at Token2049.

Global crypto data company Chainalysis has aptly released their Global Crypto Adoption this week as well. Over the course of the past year, Chainalysis has compiled data on several key metrics, to measure how pervasive crypto has become in the daily lives of people around the world, from merchants in Sub-Saharan Africa, to consumers in developed countries like the United States.

So what insights can we glean from their research?

Global crypto adoption is down

While the start of the year saw some improvement for global crypto adoption, the past few months have seen some backsliding in this department.

Chainalysis notes that while there has been a marked recovery since late 2022, when FTX crashed, adoption still has not reached the same levels that were seen during the bull market of 2021.

On the contrary, adoption has fallen slightly since the first quarter of the year, except in one area: lower-middle income countries.

According to the latest Crypto Adoption Index, many of the top countries in terms of adoption are in this lower-middle income countries category, and these countries have seen the greatest recovery in grassroots crypto adoption.

What makes this significant is that an estimated 40 per cent of the world’s population lives in these lower-middle income countries, and are still in the process of industrialisation and economic growth. Crypto adoption in these countries could mean long term adoption that sticks, as long as crypto continues to fulfil the needs of these populations.

Central and Southern Asia are the future

A good portion of the top countries for crypto adoption are in Central and South Asia, including Vietnam, the Philippines, Indonesia, Pakistan, and Thailand.

India, in fact, is at the top of the list for crypto adoption when considering how much of people’s wealth is actually stored in crypto.

In raw transaction volume, this region is already the third largest crypto market, and accounts for just under 20 per cent of global activity.

The past year has also seen decentralised finance play a bigger role in the region, accounting for more than half of the transaction volume during this time period.

Institutional adoption has also increased, with large transactions amounting to US$1 million or more accounting for 68.8 per cent of total transaction volume, up from 57.6 per cent in the preceding time period.

The legacy of Game-fi?

Crypto gaming has a bit of a mixed reputation.

For every massively successful game like Axie Infinity, there are ten copycats and a hundred scandals, from hacks to rugs and more.

Yet, game-fi also has another legacy- that of onboarding people onto crypto. And that adoption goes beyond just Web3 games.

In the Philippines, where Axie Infinity was a huge hit, Game-fi has left behind a population where plenty of people who originally created a Web3 wallet to play Axie are now engaged with the Web3 world.

Donald Lim, the first president of the Blockchain Council of the Philippines, noted that the country has a tech-savvy population and was already used to the idea of digital wallets, and given how much Filipinos use social media, blockchain with its native cryptocurrencies were not a difficult sell to people.

The government has also stepped up on crypto regulation, not by suing companies that deal in crypto, but by setting up regulatory sandboxes and setting up a special economic zone in Bataan to encourage crypto companies to set up shop.

Stablecoins, store of value, and savings

Another area where crypto adoption is strong is in Pakistan, where high inflation and economic conditions have created strong incentives for people to try storing their wealth in crypto rather than the local fiat Rupee.

Inflation in pakistan is at an astonishing 30 per cent, though some estimates indicate it could be higher.

This inflation means that people’s savings are worth less as time goes on, and since there aren’t many good options for staving off this inflation, people have turned to crypto.

While Pakistan isn’t exactly at the top of the list for crypto adoption overall, Chainalysis attributes this to a combination of large volumes of unofficial peer-to-peer transactions, as well as insufficient regulation in the country, including an earlier ban on crypto by the government.

That being said, things are looking up for Pakistanis- the local crypto industry has submitted a white paper with suggestions on how crypto can be regulated in the country, and things seem to be moving towards a regulated crypto industry in the country. Zeeshan Ahmed, who spoke to Chainalysis about crypto trends in Pakistan, noted that “eight months ago, regulators did not even want to talk about crypto… but now, things seem to be moving forward”.

Overall, while crypto adoption seems to have dropped globally, crypto isn’t facing an existential crisis. Increasingly, people are seeing the utility that can be had in holding cryptocurrency, whether as an intermediary step for entertainment as seen in the Philippines, or out of economic necessity as seen in Pakistan.

And increasingly, this adoption is coming from where these incentives are the strongest- lower-middle income countries, many of which are in Central and South Asia. This may be one of the key regions to look out for in the future, as crypto transforms basic economic transactions from both the ground up and from the top down.

If you’re interested in finding out more, you can take a look at the entire report from Chainalysis here.