Cryptocurrency attracts more investors from Argentina as inflation depreciates the value of peso.
Although the cryptocurrency market in Argentina is rather small, it seems to grow fast according to the companies operating in the digital currency trading in Argentina. Inflation and the Argentine peso devaluation actually appear as a growth opportunity for these companies.
A little more than a year after the organization opened its operations in the country, Binance, the world's largest digital currency trade platform, has 2 million accounts opened in Argentina, according to Maximiliano Hinz, Binance director for Latin America. Even though it doesn’t mean all accounts are active, it would still amount for almost 1 user every 20 Argentine.
Bitso, a Mexican-based company operating in Latin America that recently raised $250 million, claims to have more than 400,000 accounts opened in Argentina. Ripio asserts it has 1 million Argentine users when it only got 400 000 of them the year before. SeSocio says it increased its activity by 10 in a year, while the CEO of Bitex declares it grows between 20% and 30% every month.
With no public data in the unregulated industry of cryptocurrency, it is hard to materialize with certainty the extent of the interest in digital currencies among Argentines.
More transactions available with digital currencies
Nevertheless, Mercado Libre, a leading e-commerce Argentine website, bought for USD 7.8 million in Bitcoin. It also added a feature listing the real estate agencies that accept payments in Bitcoin, because of demand from the sector, especially for the high-end properties. More than 600 flats and houses are now referenced as available to buy with Bitcoins. In May, the owner of a luxury flat in Buenos Aires, whose value was set at 2 bitcoins, was ready to reduce its price if it was bought with cryptocurrency. Not living in Argentina, he said he had great confidence in the currency’s potential.
With nearly half of Argentina living in poverty, a crypto rush may seem contradictory considering the extreme volatility of some currencies. For instance, Bitcoin, the world’s most popular digital currency, lost 24% of its value in less than 2 weeks in April 2021.
However, in a country with rampant inflation, digital money is perceived as an alternative to the State-controlled one. Like Argentina, other Latin American countries that suffer from rapid inflation see growth in the cryptocurrency world. According to an Argentine economist, Marcos Zocaro, “it is no coincidence that Argentina and Venezuela, countries with sky-high inflation, are the main crypto poles in South America”.
Digital proxy of American dollars to escape Argentina's inflation
With a Gross Domestic Product expected to be at 6.7% for 2021, the inflation is projected to be much higher, at around 45% for the year, making Argentina actually poorer. The same revenue of an Argentine loses almost half its worth in only 12 months. The inflation rate has been similar for the past few years and the Argentine peso keeps losing its value against the US dollar.
The country has been struggling with inflation for years, crippled by a debt that Argentina regularly fails to reimburse. So, Argentines don't really trust their money as it depreciates quickly. They’d rather transact, own and keep American dollars, accelerating the peso depreciation. To refrain this vicious cycle, the Argentine authorities accept people to exchange US dollars against pesos with a limit of USD $200 a month.
But some cryptocurrencies can be a way around this restriction. DAI, USDC, USDT are some rather popular digital currencies in the country. Their specificities are that they are indexed on the value of the American dollar. Also called stablecoins, they promise more stability than the peso and act as a proxy of the American dollar. Some consider them as safe-haven assets, even though they are not supported by any State, but instead simply funded by private companies.
As the sector gets more structured, the Central Bank of Argentina wants to keep an eye on what is happening. As such, the BCRA asked retail banks and fintech companies to provide information on the accounts providing services with the digital currencies in order to monitor and decide on the appropriate regulation. Cryptocurrencies are in fact also a popular transaction method for illegal activities.
Media sources and useful links:
- El mercado cripto no para de crecer en la Argentina y sus usuarios diversifican sus inversiones, Telam, May 2021, Free access
- Lujoso departamento en histórico edificio de Ciudad se vende por 2 Bitcoin, Ambito, April 2021, Free access