Is the Bitcoin craze in Argentina real? Despite the global enthusiasm, why is its adoption still lagging in Argentina and what obstacles it faces.
In Argentina, economic distress has reached critical levels, with annual inflation reaching a staggering 276% as of March 12.
As the value of the Argentine peso plummets, citizens are seeking refuge in alternative assets. As Bloomberg reports, Bitcoin (BTC) is one such safe haven.
Bitcoin buying on Argentina’s top retail cryptocurrency exchange Lemon surged to a nearly 20-month high, according to findings from Bloomberg.
Lemon recorded nearly 35,000 transactions in the week ending March 10, double the average weekly volume in 2023.
The driving force behind this cryptocurrency craze is that citizens seek to protect their wealth amid a recession and soaring inflation, a situation exacerbated by President Javier Milei's "shock therapy" economic policies.
As highlighted in a report from Mexico-founded cryptocurrency exchange Bitso, Argentina had the largest stablecoin purchases and holdings in Latin America over the previous six months, as of February 2024.
Digital dollars, specifically USDC and USDT, are nearly five times more preferred than other cryptocurrencies. Argentines allocate 60% of total cryptocurrency purchases to these stablecoins, with only 13% allocated to Bitcoin.
This trend is in stark contrast to neighboring Colombia, where stablecoins are also influential but account for only 31% of purchases.
Let’s take a deeper look at how cryptocurrencies will reshape Argentina’s economic landscape and whether the BTC craze is real.
Milei Government’s Cryptocurrency Agenda
Since President Javier Milei took office in November 2023, Argentina has taken a new attitude towards cryptocurrencies.
Under the previous government, cryptocurrency holders in Argentina enjoyed a flat tax rate of 0% for holdings below $100,000, and 15% for amounts above that threshold.
In January 2024, the government proposed a bill called the Law on the Foundations and Preliminary Measures of Argentine Freedom. As part of this initiative, the bill addresses tax issues, specifically regarding cryptocurrencies.
In particular, Argentinian individuals who disclose their cryptocurrency holdings before March 31 will enjoy a 5% preferential tax rate. However, this rate will gradually increase to 15% before November 30.
Additionally, international cryptocurrency transfers will also be taxed at rates ranging from 5% to 15%.
While some welcomed the move, critics argued it treated the cryptocurrency industry unfairly compared to previous tax rates.
In December 2023, the Argentine government announced that contractual obligations and debts can now be expressed and settled through Bitcoin (BTC), a move that could open a path to the use of cryptocurrencies as legal tender.
In January 2024, Argentina further simplified this lease contract, allowing tenants to pay their landlords in Bitcoin.
Additionally, the launch of OKX’s cryptocurrency exchange service and the launch of Criptodólar, the region’s first stablecoin by local provider Ripio, show that demand is growing in the market.
However, regulatory challenges remain. Government agreements with the International Monetary Fund (IMF) tend to inhibit the use of cryptocurrencies and complicate the situation.
Understanding Argentina’s Cryptocurrency Boom
With inflation soaring at an alarming rate, reaching around 30% per month in recent times, stablecoins have found a place in daily transactions in Argentina.
According to the insights of Lemon CFO Maxi Raimondi, the demand for BTC and stablecoins such as USDC and USDT has surged over time.
Raimondi emphasized that at the beginning of each month, when people receive their wages, many people choose to convert their funds into stablecoins to mitigate the effects of inflation and currency devaluation. He said:
“If people bought cryptocurrencies like Bitcoin, it’s actually hard to see them selling their Bitcoin. Whereas, if they bought stablecoins like USDC or USDT, or DAI, etc., they would sell those cryptocurrencies to pay bills or use our existing payment services.”
This preference stems from the convenience of people converting stablecoins into fiat currencies, which can be conveniently used for daily expenses, paying bills, and conducting daily trading activities. He further explained that, in contrast, Bitcoin is generally viewed as a long-term investment option rather than an asset that is frequently bought and sold.
Meanwhile, despite reports of a surge in Bitcoin purchases, the numbers still pale in comparison to the general population, with some Reddit users pointing out that claims of “highest volume in 20 months” may be exaggerated, as actual purchases are still fairly limited.
In a country of 48 million people, the 34,700 reported weekly bitcoin purchases may seem insignificant. In addition, when the peso strengthens, the value of bitcoin adjusts accordingly, weakening its role as a safe haven against currency depreciation.
Reality Check: Bitcoin Adoption in Argentina
Despite the hype surrounding Bitcoin, adoption in Argentina paints a different picture.
As shared by a user on Reddit, Bitcoin usage in daily transactions in Argentina is very limited. There are almost no or very few stores that accept Bitcoin as a payment method, making it impractical for those who want to use their Bitcoin assets.
There are several reasons why Bitcoin adoption is limited in Argentina.
First, there are significant hurdles to overcome regarding regulatory constraints and practicality. Users report that most exchanges, including Bitcoin ATMs, require mandatory know-your-customer (KYC) requirements, which limits anonymity and accessibility.
Additionally, the volatility of Bitcoin’s value, coupled with Argentina’s volatile economic environment, makes it unsuitable for daily trading.
The risks associated with holding or trading Bitcoin are considered relatively high in Argentina as the volatility of Bitcoin prices can be more significant compared to countries with more stable economies.
Additionally, options are limited for those seeking to convert their Bitcoin holdings into local currency. While there are “cuevas” (informal exchange venues) for trading cryptocurrencies against pesos, these typically require KYC and may not offer favorable exchange rates.
Instead, the focus among Argentinian cryptocurrency users appears to be stablecoins. Users report that many are exchanging USDT for USD “blue notes” (the unofficial exchange rate), countering Bitcoin’s volatility with the stability of a stablecoin.
the way forward
Despite considerable excitement about Bitcoin, its integration into everyday transactions in Argentina remains a distant dream. Regulations and economic conditions will play a key role in shaping Argentina’s cryptocurrency story and determine its direction amid ongoing economic uncertainty. #阿根廷 #比特币狂潮
