After scoring $200 million from SoftBank, Mercado Bitcoin wants to quicken the growth of Latin America’s crypto market

There are certain assumptions people tend to make about crypto startups operating in South America. Many assume they must be trying to market bitcoin as an alternative to the region’s often unstable sovereign currencies.

More generally, the typical assumption is that crypto firms must be trying to equip the significant number of people in the region without access to bank accounts — the "unbanked" — with new ways to manage their money.

Fabrício Tota, director of Brazilian crypto exchange Mercado Bitcoin, certainly has his eye on these opportunities. But he sees them as long-term objectives. The more immediate goal for Brazil’s largest crypto exchange is simply providing attractive investment opportunities to Brazilians, in much the same way Coinbase does for Americans.

During an interview with The Block, Tota says that thus far, Brazilian investors interested in crypto have been after much the same thing as investors in the United States and Europe: “A volatile market, a way of making money fast.”

Yet Tota is aware that running one of Latin America’s biggest crypto firms presents grander possibilities. And with $200 million in the bank courtesy of the SoftBank Latin America Fund, the already acquisitive 2TM Group — Mercado Bitcoin’s parent company — now has the cash to chase them.  

The SoftBank effect

Mercado Bitcoin was founded in 2013 by brothers Gustavo and Mauricio Chamati, becoming Brazil’s first crypto exchange.

It is now part of the 2TM Group, an entity that the founders formed to better manage the various companies that have been spun off from the crypto exchange — such as tokenization firm MBDA and custodian Bitrust — and those it has acquired. Mercado Bitcoin bought crypto education outfit Blockchain Academy, for example, in February 2021. There are a grand total of nine companies within the 2TM group, with the exchange driving the bulk of its revenues at present.

Mercado Bitcoin was bootstrapped until 2TM raised an undisclosed sum led by G2D/GP Investments and Parallax Ventures in a Series A round late last year.

The fresh SoftBank investment, which valued the group at $2.1 billion, will be used to expand Mercado Bitcoin’s products and infrastructure, and to grow the firm’s headcount to 700 people by the end of 2021. The group is also expanding geographically within the confines of Latin America, with Argentina, Chile, Mexico and Colombia among its target markets.

Tota, who is also a director of 2TM, says the vision is “to grow our entire ecosystem” by continuing to incubate and acquire companies.

“When you have someone like SoftBank on the table you have to do more than take the money. It’s not a matter of taking the money, it’s a matter of what you can do with that money,” he says. “It’s a big responsibility also because for two or three or four years you’re building this and that, and someone gives you the money to accelerate things. You say, ‘Now things are getting really serious, now I have a commitment from a huge investor to do what I planned to do.’”

Targeting the unbanked

While the nearer-term goals of Mercado Bitcoin are somewhat run-of-the-mill — geographical expansion, hiring, acquisition — the longer-term possibilities are more intriguing. Starting with the unbanked.

In 2017, 70% of Brazilians had a bank account, according to research published by Statista on July 2, 2021. This makes Brazil the second most banked population in Latin America, behind Venezuela. But for a country with a population of some 211 million people, 30% is a sizable gap. Meanwhile, just 44.9% of people living in target market Colombia have bank accounts.

This issue has already drawn the attention of numerous fintech firms. Nubank, the Brazilian neobank, has built a business worth $30 billion by providing an app-based alternative to incumbent banks.

“We have a deep number of companies trying to reach the [unbanked] market here in Brazil,” says Tota. 

He believes crypto companies and decentralized technologies have a part to play in that effort, but that it will take a considerable amount of time to bring to fruition. “I think that this opportunity for the unbanked is something for five to ten years, for crypto to begin to help people with [crypto native] solutions,” he adds.

He sees helping people to stave off the impact of monetary inflation — persistently high in Latin America, albeit more stable in recent times — as another tantalizing but far-off opportunity.

“Here in Brazil, people’s feeling about inflation is that it is much more under control than it was twenty or thirty years ago,” says Tota.“When Brazil launched its dollar real in 1994, inflation went from two-digit to one-digit.” 

For the past decade, the inflation rate in Brazil has fluctuated between 3% and 9%, according to Statista. Tota says that this rate of inflation seems “like nothing to people” given the far higher rates of the eighties and nineties.

“But, of course, in the long run we do have money devaluating, but people are not that aware yet about these effects and how crypto can help to protect against them. I think that’s a huge opportunity here in terms of investment,” he says.

That helps explain why 2TM is aggressively investing in areas like crypto education. A considerable amount still needs to be done before the group (or any other operator) can capture the big opportunities that Latin America presents, at least if Tota is to be believed.

“We have a long road of education about crypto and showing people that you’re not buying something that’s going to double or multiply by ten the next day,” he adds.

Tota thinks that the Latin American crypto market is perhaps two years behind the United States in terms of adoption. That compares favorably, in his view, with the state of more common forms of investing.

“In terms of investment, we are more than two years behind when you talk about traditional markets. We have only a little bit more than three million people investing on the stock exchange — it’s ridiculous in a country of more than two hundred million people,” he explains. “So with crypto we are closer to the U.S. than we are in terms of the stock market.”

With SoftBank’s considerable heft behind it, 2TM Group is now racing to close that gap.