Inflation-Battered Argentinians Are Turning to Crypto
Inflation has hit Argentina hard. With an inflation rate of 276%, Argentinians are struggling. This high inflation has made everyday life difficult, and people are looking for ways to protect their money. One solution many are turning to is cryptocurrency. This article explores why Argentinians are adopting crypto, the risks involved, and the government’s response.
The Impact of Inflation on Argentina
Inflation has become a big part of life in Argentina. It’s as common as the famous Argentine barbecues, or asados. In the past year alone, inflation has reached 276%. This has changed how people live and what they eat. For example, beef, a staple in Argentina, has become too expensive for many. People are now eating cheaper proteins like pork and chicken.
With prices expected to rise by up to 600% this year, many Argentinians can no longer afford beef. This high inflation is also causing people to lose faith in the Argentine peso, the local currency. Instead, they are looking for more stable options like the U.S. dollar and now, cryptocurrencies.
The Rise of Black-Market Dollar Exchange
For decades, Argentinians have used black-market establishments called “cuevas” or “arbolitos” to exchange their pesos for U.S. dollars. These black-market exchanges often offer better rates than the official ones. However, they are not without risks. People can get ripped off or even receive fake currency.
Today, the black-market rate is 41% higher than the official rate of 954 pesos to the dollar. These risks have pushed people to look for safer and more reliable options. One of these options is cryptocurrency.
Why Argentinians Are Turning to Crypto
Cryptocurrency is becoming a popular way for Argentinians to protect their money. In fact, Argentina has the highest crypto adoption rate in the Western Hemisphere. Out of 130 million visitors to the world’s largest crypto exchanges, 2.5 million came from Argentina, according to a Forbes study with SimilarWeb.
Argentinians are not looking to get rich quick with cryptocurrencies. Instead, they are mostly buying and holding Tether (USDT), a stablecoin. USDT is a synthetic dollar with a market value of $112 billion. This stablecoin is popular because it is pegged to the U.S. dollar, offering a sense of stability.
The Risks of Using Stablecoins
While stablecoins like Tether might seem like a safe bet, they come with their own set of risks. Argentina has no regulations to control the crypto industry. The most trustworthy crypto exchanges in the world are not the ones most used by Argentinians. For instance, exchanges like Binance, eToro, BingX, HTX, and Bitget are popular in Argentina but are not highly trusted globally due to poor internal controls and lack of regulation.
Government Response to Cryptocurrency
Argentina’s new libertarian president, Javier Milei, is open to the idea of dollarizing the economy. He wants to create a system where people can choose which currencies to use for transactions. He believes this will lead to using the peso less and less until the country fully adopts the U.S. dollar. However, stablecoins like Tether are still a risky option as the government does not provide any safeguards for crypto users.
Crypto Adoption and Regulation
Argentina has the highest crypto adoption rate in the Western Hemisphere. A study by Chainalysis showed that Argentina leads Latin America in raw transaction volume, with an estimated $85.4 billion in value received up to July 2023. However, their preferred token, USDT, has a complicated history. Tether, the company behind USDT, has never produced an audit and has faced fines for falsely claiming that USDT was fully backed by U.S. dollars.
The risks also extend to the exchanges and marketplaces servicing Argentina. None of the top five crypto providers in Argentina are highly trusted globally. Binance, which receives the most traffic from Argentina, has been involved in money-laundering cases and has no home-country regulator.
Challenges for Ordinary Argentinians
For ordinary Argentinians, understanding these risks is difficult. Even tech-savvy individuals struggle. Fernando Apud, a software engineer, found that many crypto platforms do not disclose basic information such as whether they are registered to do business in Argentina.
When Forbes asked Binance about its status in Argentina, the company said it was “in close contact with authorities” but had not registered in Argentina. Other exchanges like eToro and Bitget gave similar responses, highlighting the lack of regulatory oversight in the country.
Local Crypto Solutions
Besides the major exchanges, Argentinians can also use local firms like Lemon and Buenbit. These companies offer prepaid cards that allow users to buy and spend crypto. However, they also operate in a regulatory gap. According to Chainalysis, Lemon Cash has about two million of Argentina’s five million crypto users.
The Future of the Argentine Economy
Argentinians are tired of dealing with the peso’s depreciation. Since the country ended its one-to-one peg to the dollar in 2002, the peso has lost significant value. Years of overspending and debt defaults have plagued the currency, and the situation worsened with the COVID-19 pandemic.
President Javier Milei is trying to reverse these policies. He has implemented measures like laying off public sector employees, suspending public works, removing energy subsidies, raising taxes, and reducing federal revenue sharing. These unpopular moves have led to protests but are seen as necessary to fix the economy.
The Persistent Flight to Dollars
Even if Argentina’s economy improves, the years of economic mismanagement mean that the flight to dollars, both paper and digital, will likely continue. The government has taken some steps to protect its citizens, like the CNV’s registration requirement for crypto firms. However, this is not enough to address the deeper issues.
Conclusion
Inflation has severely impacted Argentina, pushing many to adopt cryptocurrencies as a way to protect their wealth. While stablecoins like Tether offer some stability, they come with significant risks due to the lack of regulation. The government’s efforts to stabilize the economy and regulate the crypto market are ongoing, but it will take time to see significant changes. For now, the flight to digital dollars continues as Argentinians seek to safeguard their financial future.
