Cadenza Chronicle

Digital asset exchanges, brokerages, and payment platforms are just a few examples of investments Cadenza has made over the last few years.

Below, we describe the factors that we believe will continue to drive growth in these investments.

Inflationary Fiat Currencies

Inflation has been a hot topic globally over the past few years, with countries such as Argentina and Turkey dealing with extremely high inflation, in some cases even hyperinflation, on their local currencies. 

To take it back to the beginning, the economic phenomenon known as inflation is caused by a number of factors, but two of the primary forces are:

1.  An increase of a country’s money supply, which takes place at the direction of local government through a combination of fiscal and monetary policy

2. Relaxed banking regulations whereby banks can lower their lending standards effectively increasing the amount of outstanding debt. 

The negative impact inflation has on society is higher prices for everyday goods and depleted savings, which can be significantly amplified if inflation is left unchecked, resulting in hardship for citizens.

Our view has been that alternative and globalized solutions to local currencies in countries and regions with uncertainties as described above would lend themselves well from a demand perspective. 

In this regard, our investments in Lemon Cash in Argentina

and Rain Financial in the Middle East largely benefit from inflationary pressures.

Restrictive Monetary Policy

Capital controls are a form of monetary policy that certain countries use to limit the inflows and outflows of foreign capital within a domestic economy. 

Historically, there’s been much debate amongst economists as to the pros and cons of capital controls and their effectiveness as a form of monetary policy. 

However, one effect that’s undeniable is that capital controls limit the investment options for non-affluent citizens to invest globally. 

Take the Reserve Bank of India for example, which implemented specific limitations on how much Indian citizens can invest outside of the country through a program called the Liberalised Remittance Scheme (LRS). Currently, the LRS allows Indian citizens to invest up to $250K USD globally per year with prior written approval from the RBI.

With a population of 1.4B, India represents nearly 20% of the world’s population. Our view is that globalization will continue to accelerate in the coming decades and citizens in countries with strict capital controls will actively seek the ability to invest globally without limitations. 

To this end, our seed investment in CoinDCX – India’s first crypto unicorn, provides such access to global financial products starting with crypto.

Inefficient Cross-Border Payment Rails

Per the World Bank, remittances to low and middle income countries grew to over $669B USD in 2023. 

Remittances have become a significant source of private financial resources for households in emerging markets. These transfers have been extremely beneficial to economic growth in these countries helping to curb poverty, promote household formation, and technological advancement. 

Despite an expected growth rate of 15.6% CAGR between 2023-2030, the remittance industry is known for high fees and slow processing times which has been a main focus of the United Nations in recent years.

One of the UN’s goals by 2030 is to reduce the cost of remittances to less than 3% and eliminate any remittance corridors with costs in excess of 5%.  

In 2023, the Philippines had the fourth largest amount of remittance inflows in the world with over $40B USD coming into the country. Nigeria was not far behind with over $20B USD in remittance inflows, making it the largest recipient in sub-Saharan Africa.

In the Philippines, overseas foreign workers are a main part of the country’s economic development plans. The current government continues to expand their labor exportation with plans to send over 500K Filipinos abroad in 2023. These workers will contribute significantly to the remittance inflow over the coming years. 

In 2021, the Central Bank of Nigeria rolled out its ‘Naira 4 dollar scheme’ to further incentivize remittances throughout the region by offering 5 Naira for every $1 USD. This program was originally supposed to last only three months. But it was extended indefinitely by the CBN given its overwhelming success.  

Cadenza’s investments in Busha in Nigeria and PDAX in the Philippines are largely focused on the growth and inefficiencies surrounding the remittance market.

If you found this insightful, you may also like Hong Kong’s Digital Assets Regulatory System – A New Frontier or Web3 Gaming is Going Mainstream.

If you would like more information on our thesis surrounding Emerging Market Digital Assets or other transformative technologies, please email info@cadenza.vc